U.S.A. and Canada each produce two goods, an educational product and a medical product. U.S.A is...
U.S.A. and Canada each produce two goods, an educational product and a medical product. U.S.A is endowed with 2,000 units of labor, and Canada is endowed with 1,500 units of labor. The unit labor requirements are given as:
| U.S.A | Canada | |
|
Unit Labor Requirement for Educational Product |
aA=0.6 |
aA=0.3 |
|
Unit Labor Requirement for Medical Product |
aM=0.1 |
aM=0.3 |
What is the opportunity cost of producing an additional unit of the educational product in the U.S.A & Canada?
Homework Answers
Opportunity cost is the value of next best alternative use of a factor. Here factor is labour.If we use one labour and produce 2. Units of education good. And if we could produce 3 units of medical goods with that same labour,then opportunity cost of producing additional unit of education good is=3/2=1.5 medical goods.
Opportunity cost of USA of producing additional unit of educational good=aA/aM=0.6/0.1=6
Opportunity of Canada of producing additional unit of educational good=aA/aM=0.3/0.3=1
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