Question

the chart below shows a production possibility schedule for a pastry shop that makes $0.50 profit per donut and $0.75 profit per bagel. choice ____ presents the lowest opportunity cost.

Answer 1

Choice "B" represents the lowest opportunity cost

Answer 2

The choice of dedicating all the available resources to the production of only bagels presents the lowest opportunity cost.

The expected profit per unit is the only data provided about the production process in the pastry shop. Therefore, those the two figures provided already contain information about the production costs of donuts and bagels, the market prices and the sold quantities, in order to deduce the profit that each product would generate.

In this situation, as the bagels make a higher profit per unit, the best option for the company would be chosing to dedicate all its resources to the production of bagels, because if not, when selling a donut the opportunity cost per unit of product would be 0.25, plus the things that the company will not be able to purchase that would have been possible if they had those extra 0.25 per unit.