Question

On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of bananas?

Answer 1

Answer:

.5 a lb of bananas

Answer 2

The opportunity cost of producing one pound of bananas is -2.

Given

• On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced.
• At another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced.

To Find

The opportunity cost of producing a pound of bananas

Solution

The Opportunity Cost of producing one unit of X in terms of Y  = Change in Y/ Change in X

= (Y₂ - Y₁) / (X₂ - X₁)

Let the point where 500 pounds of apples and 1200 pounds of bananas are plotted be (X₁, Y₁)

Let the point where 300 pounds of apples and 1300 pounds of bananas are plotted be (X₂, Y₂)

Therefore, the opportunity cost of producing one pound of bananas

= Change in Quantity of Apples/ Change in Quantity of Bananas

= (X₂ - X₁) / (Y₂ - Y₁)

= (300 - 500)/(1300 - 1200)

= 200/ -100

= -2

Therefore, the opportunity cost of producing one pound of bananas is -2.

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