Question

A farmer in Germany can use his land to produce corn or wheat. Suppose he can produce 1 million bushels of corn if it devotes all of its land to corn or 10 million bushels of wheat if it devotes all time to wheat. Plot the PPF with corn on the vertical access and wheat on the horizontal axis. What is the opportunity cost of a bushel of corn

Answer 1

Answer:

1/3 bushel of rye

Explanation:

Given that the farmer produces 30 bushels of corn every year but using the entire field on producing 30 corn bushels would cost 10 rye bushels. Thus, the opportunity cost of producing one bushel of corn would be 1/3 bushel of rye(10/30). The slope of the farmer's PPF would be -1/3 and hence, the opportunity cost of the farmer can be calculated by considering the reciprocal of a bushel of corn's opportunity cost.