Question

Sharon is a skilled toy maker who is able to produce both trucks and puzzles. She has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of her time.
Choice Hours Producing Produced
(Trucks) (Puzzles) (Trucks) (Puzzles)
A 8 0 4 0
B 6 2 3 11
C 4 4 2 16
D 2 6 1 19
E 0 8 0 20
Required:
1. Suppose Sharon is currently using combination D, producing one truck per day. Her opportunity cost of producing a second truck per day is _________ per day.2. Now, suppose Sharon is currently using combination C, producing two trucks per day. Her opportunity cost of producing a third truck per day is_________ per day.

Answer 1

Answer:

1. Opportunity Cost of 2nd truck from 1st Truck = 1T : 3P

2. Opportunity Cost of 3rd truck from 2nd truck = 1T : 5P

Explanation:

Choice                             Hours Producing                          Produced

                                         (Trucks) (Puzzles)                     (Trucks) (Puzzles)

A                                              8          0                                    4          0

B                                               6          2                                   3          11

C                                               4          4                                  2           16

D                                               2          6                                  1            19

E                                                0          8                                 0           20

Opportunity Cost is the cost of a good sacrifised to achieve additional unit of other good.

• From point D ( 1 truck) to point C ( 2nd truck ), opportunity cost in terms of puzzles sacrifised is 19 - 16 = 3. So, opportunity cost is    1T : 3P
• From point C ( 2 trucks ) to point D (3rd truck ), opportunity cost in terms of puzzles sacrifised is 16 - 11 = 5. So, opportunity cost is    1T : 5P