Answer to Question #127976 in Economics of Enterprise for abhi

Question

A firm currently produces 400 units of a good X and 200 units of good Y using its resources. In the following week, it decides to produce 500 units of X and 150 units of Y. What is the opportunity cost of the decision to produce 100 more units of X?

Answer 1

Answer

The opportunity cost of producing 100 more units of good X is 50 units of good Y foregone.

Explanation.

Opportunity cost is the value of the next best alternative foregone when a choice is made.

The decision to increase good X by 100 units (from 400 units to 500 units) will result in the decrease in good Y by 50 units (from 200 units to 150 units).

Thus, 50 units of good Y are foregone in increasing good X by 100 units.

Technically, the opportunity of increasing good X by 100 units is 50 units of good Y foregone.