Opportunity Cost Concepts and Calculations
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Opportunity Cost Concepts and Calculations

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Questions and Answers

What is opportunity cost defined as?

  • The amount of a good that must be forgone to obtain an additional unit of another good (correct)
  • The total cost of producing one more unit of a good
  • The time spent in producing a good
  • The financial investment required to start a production
  • How is the opportunity cost of a cell phone calculated?

  • Total number of cell phones produced divided by DVDs gained
  • Number of cell phones gained divided by the total production cost
  • Number of cell phones produced multiplied by DVDs forgone
  • Number of DVDs forgone divided by the number of cell phones gained (correct)
  • What happens to the opportunity cost of a cell phone as its production quantity increases?

  • It decreases as fewer resources are needed
  • It increases as the quantity of cell phones produced increases (correct)
  • It remains constant regardless of production levels
  • It becomes negative due to economies of scale
  • What does the slope of the Production Possibilities Frontier (PPF) represent?

    <p>The opportunity cost of producing one good over another</p> Signup and view all the answers

    What is true about the shape of the PPF?

    <p>It is bowed outward showing increasing opportunity costs</p> Signup and view all the answers

    If the opportunity cost of a DVD is the ratio of cell phones forgone to DVDs gained, what can be said about its relationship to the opportunity cost of a cell phone?

    <p>The opportunity cost of a DVD is the inverse of the opportunity cost of a cell phone</p> Signup and view all the answers

    What reflects a scenario where opportunity cost increases most significantly?

    <p>Producing a large quantity of cell phones</p> Signup and view all the answers

    When considering efficiency in production, what is crucial in determining opportunity costs?

    <p>Using the maximum resources available</p> Signup and view all the answers

    How does an increase in the production of berries from 21 to 26 pounds relate to opportunity cost?

    <p>It may indicate a rising opportunity cost as more is produced</p> Signup and view all the answers

    Which factor is NOT typically included in calculating opportunity cost?

    <p>Financial costs associated with production</p> Signup and view all the answers

    Study Notes

    Opportunity Cost

    • Opportunity cost is the amount given up to get something else.
    • It represents the trade-off in choices.
    • It's calculated as the value of the next best alternative forgone.
    • Production possibilities frontier (PPF) is used to calculate opportunity cost.

    What is Opportunity Cost?

    • Moving between points on a PPF involves a trade-off.
    • Opportunity cost reveals how much of one item is traded off for another.
    • The amount forgone to get an additional unit of another item is the opportunity cost.

    The Opportunity Cost of a Cell Phone

    • The opportunity cost of a cellphone is the number of DVDs given up getting an extra cell phone.
    • Calculated as the DVDs forgone divided by the number of cellphones gained.
    • Example: Opportunity Cost of good Y = No. good X / No. good Y

    Opportunity Cost and the Slope of the PPF

    • The opportunity cost of a cellphone increases as more cellphones are made.
    • The slope of the PPF shows the opportunity cost.
    • The PPF's bowed-out shape means the slope changes, becoming steeper as more cellphones are produced.
    • Low opportunity cost for cellphones when few are produced on the PPF (gentle slope). Costs increase as production rises. High opportunity cost if many cellphones are produced. The slope is steeper.

    Opportunity Cost is a Ratio

    • The opportunity cost of a cellphone is the ratio of DVDs forgone to cellphones gained.
    • Likewise, the opportunity cost of a DVD is the reverse of the cellphone.
    • So, the opportunity cost of a DVD is equal to the opposite of the opportunity cost of a cell phone

    Example on opportunity cost (graph)

    • The opportunity cost of a cell phone increases as more cellphones are produced.
    • The graph shows how the cost of a cellphone in terms of DVDs increases as more are produced.

    Assignment: Opportunity Cost

    • Given a table of possibilities between fish and berries depending on specific production values, student is asked to find the opportunity cost of a pound of berries when production increases and to determine whether the opportunity cost increases with more berries produced..

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    Description

    This quiz explores the fundamental principles of opportunity cost, including its definition, calculation, and implications in decision-making. It discusses the production possibilities frontier (PPF) and how trade-offs are represented. Test your understanding of how opportunity cost affects choices, particularly in the context of consumer goods like cell phones and DVDs.

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