Question

The following table is the production possibilities for a 1000 acre farm that can grow wheat or cotton. Suppose the farmer is currently producing 740,000 pounds of cotton and 10,000 bushels of wheat. What is the opportunity cost of increasing cotton production 60,000 pounds.

Wheat production (Bushels) | Cotton Production (pounds)

0 | 800,000

10,000 | 740,000

20,000 | 660,000

30,000 | 550,000

40,000 | 410,000

50,000 | 230,000

60,000 | 0

- 10,000 bushels of wheat

- 20,000 bushels of wheat

- 30,000 bushels of wheat

- 60,000 bushels of wheat

- about 15,000 bushels of wheat

- 0, there is no opportunity cost for wheat

Answer 1

Answer

The correct answer is (a) 10,000 bushels of wheat

Suppose the farmer is currently producing 740,000 pounds of cotton and 10,000 bushels of wheat. We can see from above that when It wants to produce 800,000 cotton they will have to produce 0 wheat. Hence In order to increase production of cotton from 740000 to 740000 + 60000 = 800,000. They have to decrease production of wheat from 10,000 to 0. Hence In order to increase production by 60,000 from 740,000 to 800,000 we have to sacrifice 10,000 - 0 = 10000 wheat. This amount of wheat that we have to sacrifice is what we called opportunity cost of increasing cotton production 60,000 pounds. Hence, opportunity cost of increasing cotton production 60,000 pounds is 10,000 bushels of wheat

Hence, the correct answer is (a) 10,000 bushels of wheat