Question

In the following table of production possibilities of X and Y:

Production Possibilities

A B C D

X 18 12 6 0

Y 0 12 24 48

ANSWER THE FOLLOWING QUESTIONS BASED ON THE ABOVE TABLE. WRITE YOUR ANSWERS TO THE NEAREST TWO DECIMAL DIGITS.

A) If the economy is at point C, what is the opportunity cost (in absolute value) of producing one more unit of X?

Answer for part 1

B) What is the opportunity cost (in absolute value) of producing the second unit of X?

Answer for part 2

C) If the economy is at point C, what is the opportunity cost (in absolute value) of producing one more unit of Y?

Answer 1

Sol:

Opportunity cost is the cost of alternative forgone in order to achieve the best alternative.

So, when economy is at Point 'C' , then

a) Opportunity cost of 12 unit of X = 12 Y

Opportunity cost of 1 unit of X = 12/12 = 1unit of Y

b) Opportunity cost of 2 units of X = 2 unit of Y

c) opportunity cost of 1 more unit of Y = 1 unit of X

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