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Suppose Portugal and England both produce only wool and wine. Portugal can produce 900 units of...

Suppose Portugal and England both produce only wool and wine. Portugal can produce 900 units of wool or 800 units of wine, and England can produce 1000 units of wool or 1200 units of wine. Fill in the blanks (using decimals, not fractions).

England's opportunity cost of producing one unit of wool is ________ unit(s) of wine, and Portugal's opportunity cost of producing one unit of wool______________ unit(s) of wine.

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Answer #1

Opportunity cost is the loss of the best possible alternative when one alternative is chosen.

England can produce either 1000 units of wool or 1200 units of wine.

When it produces 1 unit of wool, it is giving up the production of 1200/1000 (=1.2) units of wine.

Thus, England's opportunity cost of producing one unit of wool is 1.2 units of wine

Again, Portugal can produce either 900 units of wool or 800 units of wine.

When it produces one unit of wool, it is giving up the production of 800/900 (=0.8889) units of wine.

Thus, Portugal's opportunity cost of producing one unit of wool 0.8889 unit of wine.

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