Question

Suppose a country is able to produce a maximum of either 300 units of lumber or 100 units of rice. This country is currently allocating its labor resources to produce 75 units of lumber and 75 units of rice. To increase its lumber production by 6 units to 81, the country faces an opportunity cost of

A. 2 units of rice.

B. 6 units of rice.

C. 75 units of rice.

D. 18 units of rice

Answer 1

Answer: A. 2 units of rice.

Explanation:

The opportunity cost of producing lumber is:

= Maximum rice production / maximum lumber production

= 100 / 300

= 1/3 units of rice

If the country wants to increase its lumber production by 6, it will incur an opportunity cost of:

= 6 * 1/3

= 2 units of rice