Microeconomics
Solutions
Microeconomics
A person can produce the following combinations of goods A and B: 20A and 0B, 15A and 5B, 10A and 10B, 5A and 15B, and 0A and 20B. What is the opportunity cost of producing 1B? 1A?
Opportunity cost.
Table 1 shows the different combinations of good A and good B.
Table 1
| Combination | Good A | Good B |
| 1 | 20 | 0 |
| 2 | 15 | 5 |
| 3 | 10 | 10 |
| 4 | 5 | 15 |
| 5 | 0 | 20 |
Table 1 reveals that when a person moving from combination from one point to other point he gives up 5 units of A to gain 25 units B. In other words, the person is given up 5 units of B to gain 5 units of A.
The general formula for calculating opportunity cost is given as follows:
Substitute the respective values in Equation (1) to calculate the opportunity cost of producing good A
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