3) Sarah and her boyfriend Mike want to save some money to pay for their wedding. So they decided to help people in the neighborhood by cleaning their garages and mowing lawns. Sarah takes 60 minutes to clean a garage and 80 minutes to mow a lawn. Mike takes 80 minutes to clean a garage and 80 minutes to mow a lawn. Sarah and Mike devote 10 hours per week each to these activities and get paid $25 for each garage they clean and $25 for each lawn they mow. Sarah says to Mike: "I have an absolute advantage in cleaning and we are equally productive in mowing. Therefore I should do both cleaning and mowing but you should only mow lawns." Mike disagrees. He thinks Sarah should specialize in cleaning garages and he should specialize in mowing lawns. Help Sarah and Mike to resolve their dispute.a) Who has an absolute advantage in cleaning garages? In mowing lawns? Explain.b) Draw Sarah's and Mike's production possibilities frontiers. What are each individual's opportunity costs?c) Who has a comparative advantage in cleaning garages? In mowing lawns? Explain.d) Is Sarah right when she says that she should do both cleaning and mowing while Mike should only mow lawns? Or may be Mike is right when he suggests that Sarah specializes in cleaning and he specializes in mowing? Illustrate and substantiate your answer with a numerical example.Answer: a) Sarah has an absolute advantage in cleaning as she is more productive in this activity. She can clean 10 garages per week while Mike can only clean 7.5 garages. Sarah and Mike are equally productive in mowing lawns (each can mow 7.5 lawns per week) and therefore none of them has an absolute advantage in this activity.1Copyright © 2012 Pearson Education, Inc.b) Sarah's and Mike's PPFs are shown in the figure above. If Sarah works 10 hours a week, she can either mow 7.5 lawns or clean 10 garages. If she mows 7.5 lawns, she gives up 10 garages, which means her opportunity cost of one lawn is 1.33 garages (10 ÷ 7.5). If she cleans 10 garages, she gives up 7.5 lawns and her opportunity cost is 0.75 lawns per garage (7.5 ÷ 10). Mike can either mow 7.5 lawns or clean 7.5 garages, so his opportunity costs are 1 lawn per garage and 1 garage per lawn.c) Sarah has a comparative advantage in cleaning garages. Her opportunity cost of cleaning a garage (0.75 lawns) is lower than Mike's (1 lawn). Mike has a comparative advantage in mowinglawns. His opportunity coast of mowing a lawn (1 garage) is lower than Sarah's (1.33 garages).d) Sarah is wrong and Mike is right. Individuals can gain if they specialize in the activities wherethey have a comparative advantage. Therefore Sarah should specialize in cleaning while Mike should specialize in mowing. A simple numerical example can show how Mike and Sarah are better off if they specialize this way. Suppose first that Sarah and Mike specialize as Sarah suggests. For example, Sarah spends 8 hours per week cleaning garages and 2 hours per week mowing lawns. Then, she will clean 8 garages and move 1.5 lawns per week. Mike spends all histime mowing lawns and mows 7.5 lawns per week. Together they will clean 8 garages and move 9 lawns, earning $425 ($25 × 8 garages + $25 × 9 lawns). Now, suppose Sarah and Mike specialize as Mike suggests. Then, Sarah will clean 10 garages a week while Mike will mow 7.5 lawns a week, so they will earn $437.5 ($25 × 10 garages + $25 × 7.5 lawns).2Copyright © 2012 Pearson Education,