Question

two small countries, palau and tuvalu produce two goods: fish and coconuts. palau can produce 60 fish per hour or 20 coconuts per hour. tuvalu can produce 30 fish per hour or 40 coconuts per hour. both countries experience constant opportunity costs.

Answer 1

The opportunity cost of producing one fish for Pilau is 1/4 coconut.

What is the opportunity cost?

Opportunity cost is the cost of the next best option forgone when one alternative is chosen over other alternatives.

Opportunity cost arises because the resources available to carry out production activities are available in limited quantities. So, when economic agents decide to produce a good, they forgo the opportunity to use the same resources to produce another good.

Economic theory suggests that the good that should be produced is the good that has the least opportunity cost.

Opportunity cost for Pilau of producing fish : 20 / 60 = 1/4 coconut

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