Question

6. A firm currently produces 500 units of a good X and 300 of a good Y using its resources. In the following week it decides to produce 600 units of X and 250 of Y. What is the opportunity cost of the decision to produce 100 more units of X?

Answer 1

Answer: Opportunity cost can be described as the cost of the best next alternative forgone. You can calculate the opportunity cost of producing 100 more good X units by looking at the ratio of sacrifice to gain. If the choice is to produce 100 units of good X instead of 50 units of good Y, you are giving up (100 units/50 units), which equals two units opportunity cost. This means that for every 100 more units of good X you produce, you are giving up production of 2 units of good Y.