13th Edition
Roger A. Arnold
ISBN: 9781337617406




13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

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?

To determine

Opportunity cost.


Table 1 shows the different combinations of good A and good B.

Table 1

CombinationGood AGood B

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:

Opportunity Cost=Given up outputGained output (1)

Substitute the respective values in Equation (1) to calculate the opportunity cost of producing good A

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