Answer to Question #181639 in Macroeconomics for Tšebeletso Mofokeng

Question

The nation of Leisureland can produce two goods, bicycles and bowling balls.

The western region of Leisureland can, if it devotes all its resources to bicycle production, produce 100 bicycles per month. Alternatively, it could devote all its resources to bowling balls and produce 400 per month—or it could produce any combination of bicycles and bowling balls lying on a straight line between these two extremes.

The eastern region of Leisureland can, if it devotes all its resources to bicycle production, produce 400 bicycles per month. Alternatively, it could devote all its resources to bowling balls and produce 100 per month—or it could produce any combination of bicycles and bowling balls lying on a straight line between these two extremes.

What it is the opportunity cost of producing an additional bowling ball measured in terms of forgone bicycles in western Leisureland?

Answer 1

Western region

1.) Devote all resources to produce 100 bicycles per month.

2.) Devote all resources to produce 400 bowling balls.

Also a combination.

The opportunity cost will be:

The ratio is 100 bicycles to 400 balls.

In 1 bicycle produced, the equivalent is 4 balls.

Opportunity cost of producing additional ball means you forgore to produce 0.25 of a bicycle.

Calculation

If 1 bicycle cost= 4 balls cost

? = 1 ball.

$Opportunity cost=\frac{1}{4}\times1=0.25$