Question

A production possibilities table for DVDs and computers is shown below. 

	Production Alternatives
Type of Production	A	B	C	D	E
Computers	0	20	40	60	80
DVDs	80	65	47	27	0

Instructions: Enter your answers as absolute and whole numbers. 

a. What is the opportunity cost of computers when moving from point A to point B? 

b. What is the opportunity cost of computers when moving from point B to point C? 

c. What is the opportunity cost of computers when moving from point C to point D?

Answer 1

(a) The correct answer is

• 0.75 DVDs.

As can be seen, to move from point A (0 Computers and 80 DVDs) to point B (20 Computers and 65 DVDs), the number of computers would increase by 20 units, at a cost of 15 DVDs. This means that to create 20 Computers, we have to sacrifice 15 DVDs, and hence, to create 1 Computers, we have to sacrifice 15/20 or 0.75 DVDs.

(b) The correct answer is

• 0.9 DVDs.

As can be seen, to move from point B (20 Computers and 65 DVDs) to point C (40 Computers and 47 DVDs), the number of computers would increase by 20 units, at a cost of 18 DVDs. This means that to create 20 Computers, we have to sacrifice 18 DVDs, and hence, to create 1 Computers, we have to sacrifice 18/20 or 0.9 DVDs.

(c) The correct answer is

• 1 DVDs.

As can be seen, to move from point C (40 Computers and 47 DVDs) to point D (60 Computers and 27 DVDs), the number of computers would increase by 20 units, at a cost of 20 DVDs. This means that to create 20 Computers, we have to sacrifice 20 DVDs, and hence, to create 1 Computers, we have to sacrifice 20/20 or 1 DVDs.