Question

1. Consider the following production possibilities for two goods, Autos (A) and bushels of Wheat (W).

Autos	Wheat	Opportunity Cost of Autos (MCA = marginal cost)
0	30
1	27
2	21
3	12
4	0

1. In the Opportunity Cost column in the table, calculate the marginal cost of good Autos measured in terms of bushels of Wheat foregone (MC_A = marginal cost).
   
2. In a) you should find that as fewer and fewer bushels of Wheat are produced, the opportunity cost of Autos increases. Why do you think that happens?

Answer 1

a)

the opportunity cost of production is the foregone production, here to increase production of Autos production of wheat is sacrificed or forgone.

The opportunity cost of the first Auto production =30-27=3 units of wheat and so on

Autos	wheat	Opportunity Cost of Autos (MCA = marginal cost)
0	30
1	27	3
2	21	6
3	12	9
4	0	12

b)

The opportunity cost is increasing as the production is increasing because of the relocation of inputs from wheat to Autos. It relocated more productive input for Auto and less for wheat, and at last the least productive inputs for auto also shifted to producing autos, and that decreases productivity per input so the foregone cost increases as the production increases because there is the different specialization of different inputs.