Question

Alpha can produce 40 units of coffee or 8 units of cashew nuts. Beta can produce 6 units of coffee or 6 units of nuts. Which statement is accurate with regard to the opportunity cost of production?

Question 1 options:

Alpha's opportunity cost of producing 1 unit of cashew nuts is 5 units of coffee.


Alpha's opportunity cost of producing 1 unit of coffee is 8 units of nuts.


Beta's opportunity cost of producing 1 unit of nuts is 8 units of coffee.

Answer 1

Answer:

Alpha's opportunity cost of producing 1 unit of cashew nuts is 5 units of coffee.

Explanation:

Opportunity cost is the value of the missed alternative. It is the value of the foregone option after making a decision.

Alpha can either produce 40 units of coffee or eight units of cashew nuts. If he decides to produce coffee, cashew nuts become the opportunity cost. He cannot do both at the same time. In this case,  making I unit of cashew nut will means sacrificing 5 units of coffee.