Question

12. Working with Numbers and Graphs Q12

Suppose a small economy can produce the following combinations of goods A and B.

Good A	Good B
80	0
60	100
40	200
20	300
0	400

The opportunity cost of a unit of good B is ___________ units of good A, while the opportunity cost of good A is _________ units of good B.

Answer 1

The opportunity cost is defined as the next best activity forgone, the opportunity cost is calculated by dividing what you lose by what you gain.

For producing 100 additional unit of the commodity B , the nation has to give up 20 units of good A,

So the opportunity cost for the good B is

$=20/100$

$=0.2$

Like wise for producing 20 additional unit of the commodity A the nation has to give up 100 units of the good B, so the opportunity cost for good A is

  $=100/20$

  $=5$