Question

Exhibit 2-1 Production possibilities curv e data Consumption Goods Capital Goods 10 4 4 In Exhibit 2-1, why is the opportunity cost of producing the fourth unit of capital 4 units of consumption goods but ty cost of producing 4 units of capital is 10 units of consumption goods? Because the opportunity cost of capital goods is constant while the opportunity cost of consumption goods is g as this economy moves from more consumption goods to more capital goods. Because the opportunity cost of the fourth unit of capital is the consumption goods that must be given up for this economy to move from three units of capital to four units of capital, but the opportunity cots of four units of capital is the amount of consumption goods that must be given up to go from zero units of capital to four units of capital. Because consumption goods are more valuable than capital goods. O It isn't. The opportunity cost of the fourth unit and the opportunity cost of four units is the same.

Answer 1

Producing 4^th unit of capital is a movement from producing 3^rd unit of capital to 4^th unit of capital.

Here opportunity cost of 4^th unit of capital will be equal to loss of production of consumption goods, which otherwise would have been made. Opportunity cost of producing 4^th unit of capital which is equal to 4 units of (4-0=4) units of consumption units.

While we talk about opportunity cost of producing 4 units of capital, we are looking at the movement from 0 capital goods to 4th capital goods in total. Opportunity cost of 4 units of capital will be equal to loss of production of consumption goods which otherwise would have been made. Opportunity cost of producing 4 units of capital is equal to 10 (10-0) units of consumption units.

Option (2) is correct.