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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

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.

Explanation

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

Table 1

CombinationGood AGood B
1200
2155
31010
4515
5020

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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