Do the Philadelphia Phillies of the MLB, have a comparative advantage over the New York Yankees?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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We cannot answer this question with certainty because we do not know enough about these two organizations.  Therefore, it is likely that your instructor is asking you this question to try to get you to apply the concept of comparative advantage even though you do not know enough about this specific situation.

A firm has a comparative advantage over another firm when it can produce a good or service at a lower opportunity cost.  To apply this to the two baseball teams, we have to ask what product they are both making and what their opportunity costs are.  In this case, we can assume that both teams are trying to produce wins in the regular season.  We cannot say exactly what their opportunity cost is because we do not know what they would have done with their money if they were not trying to produce wins.  So we will have to approximate by looking at how much they spent.

In the 2011 season, we can see that the Phillies won 102 games while the Yankees won 97.  We can also see that the Yankees spent more money on their players.  If the Yankees spent more money overall (including coaches and such) to produce fewer wins, we can argue that they had a greater opportunity cost per win.  This would mean that the Phillies did have a comparative advantage.

This is not a truly accurate way to measure comparative advantage, but it is as good a guess as we can make given the information that is available to us as outsiders of these two organizations.

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