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Chapter 15: Problem 2

Suppose the United States can produce either 90 apples and 20 oranges or 80 apples and 30 oranges. What is the opportunity cost of producing 1 apple?

Short Answer

Expert verified
The opportunity cost of producing 1 apple is 1 orange.

Step by step solution

01

Opportunity Cost Concept

Opportunity cost is the cost of forgoing the next best alternative when making a decision. The opportunity cost of an action is what you must give up doing when choosing one course of action over another
02

Solution Setup

In our scenario, the U.S. can either produce 90 apples and 20 oranges or 80 apples and 30 oranges. Find the difference in the number of apples and oranges for these two scenarios.
03

- Calculate the Opportunity Cost

In the first scenario, they make 90 apples and miss the opportunity of making 30 oranges from the second scenario. In other words, to produce 10 more apples (from 80 to 90), the U.S. gives up the opportunity to produce 10 more oranges (from 20 to 30). So, the opportunity cost of producing 1 apple would be the number of oranges given up to produce 10 more apples, divided by 10, which is 1 orange. Hence, the opportunity cost of producing one additional apple is one orange.
04

Final Thought

Opportunity cost measures the trade-off between choices. In this case, for every apple produced, the U.S. foregoes the opportunity to produce an orange. This is the fundamental nature of trade-offs in economics.

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