Refer to the table below to answer the following questions. 1) What is the opportunity cost of...

Question:

Refer to the table below to answer the following questions.

Point Popsicles Ho-Hos
A 120 0
B 110 40
C 85 70
D 60 90
E 0 100

1) What is the opportunity cost of the first popsicle in relation to Ho-Hos?

2) What is the opportunity cost of the 70th popsicle in relation to Ho-Hos?

3) What is the opportunity cost of the 118th popsicle in relation to Ho-Hos?

4) What is the opportunity cost of the 40th popsicle in relation to Ho-Hos?

5) What is the opportunity cost of the first Ho-Ho in relation to popsicles?

6) What is the opportunity cost of the 100th Ho-Ho in relation to popsicles?

Answer and Explanation:

1) The OC of the first popsicle (P) in relation to Ho-Hos (HH) is 0.167 Ho-Hos'.

This is calculated as follows:

  • {eq}\begin{align} OC_{P1} &= \frac{\Delta HH}{\Delta P}\\ \\ &= \frac{100 - 90}{60 - 0}\\ \\ &= \frac{10}{60}\\ \\ &= 0.167~ HH. \end{align} {/eq}

2) The OC of the 70th popsicle (P) in relation to Ho-Hos (HH) is 1.333 Ho-Hos.

This is calculated as follows:

  • {eq}\begin{align} OC_{P70} &= \frac{\Delta HH}{\Delta P}\\ \\ &= \frac{90 - 70}{85 - 60}\\ \\ &= \frac{20}{15}\\ \\ &= 1.333~ HH. \end{align} {/eq}

3) The OC of the 118th popsicle in relation to Ho-Hos is 4.0 Ho-Hos.

This is calculated as follows:

  • {eq}\begin{align} OC_{P118} &= \frac{\Delta HH}{\Delta P}\\ \\ &= \frac{40 - 0}{120 - 110}\\ \\ &= \frac{40}{10}\\ \\ &= 4.0~ HH. \end{align} {/eq}

4) Based on the break-down of data given in the question, the OC of the 40th popsicle would be precisely the same as that of the first popsicle calculated in (1) above, that is, 0.167 Ho-Hos.

5) The OC of the first Ho-Ho in relation to popsicles is 0.25 popsicles.

This is calculated as follows:

  • {eq}\begin{align} OC_{HH1} &= \frac{\Delta P}{\Delta HH}\\ \\ &= \frac{120 - 110}{40 - 0}\\ \\ &= \frac{10}{40}\\ \\ &= 0.25~ P. \end{align} {/eq}

6) The OC of the 100th Ho-Ho in relation to popsicles is 6.0 popsicles.

This is calculated as follows:

  • {eq}\begin{align} OC_{HH100} &= \frac{\Delta P}{\Delta HH}\\ \\ &= \frac{60 - 0}{100 - 90}\\ \\ &= \frac{60}{10}\\ \\ &= 6.0~ P. \end{align} {/eq}

Principle of Increasing OC

Note that in these calculations OC increases as more of one commodity is produced. That is, increasing amounts of the other commodity must be sacrificed per unit of the first commodity gained. This is reflective of the general principle of increasing OC.


Learn more about this topic:

Opportunity Cost: Definition & Real World Examples

from Economics 102: Macroeconomics

Chapter 1 / Lesson 2
329K

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