Question

5.  Suppose the country of Bentleydom can produce the following efficient
     combinations of consumer goods and capital goods:

                        Consumer Goods                    Capital Goods

                                      0                                            60

                                    10                                            55

                                    20                                            45

                                    30                                            30

                                    40                                            0

                                                                                

1. What is the opportunity cost of increasing the production of consumer goods from 10 to 20?

2. What is the opportunity cost of increasing production of consumer goods from 30 to 40?

3. Is the opportunity cost of producing consumer goods constant?  If not, describe what happens to the opportunity cost of consumer goods as we produce more.

4. Would happen to the numbers in the tables  if a new technology were discovered that greatly increases productivity in the production of capital goods, but is of no use in producing consumer goods.

Answer 1

a- opportunity cost of increasing the production of consumer goods from 10 to 20 = 55-45 = 10 units of capital goods.

b- opportunity cost of increasing the production of consumer goods from 30 to 40 = 30 - 0 = 30.

c- opportunity cost of producing consumer goods is not constant. As we produce more consumer goods, its opportunity cost rises.

d- if a new technology were discovered that greatly increases productivity in the production of capital goods, but is of no use in producing consumer goods then amount of capital good that can be produced will increase and amount of consumer goods will remain unchanged. At the same time, opportunity cost of producing consumer goods also rises.