Question

The equation for a production possibility frontier with good y on the vertical axis and good x on the horizontal axis is y = 10 – x. Determine the opportunity cost of producing one more unit of good x.

Answer 1

Production possibility frontier equation is as follows -

y = 10 - x

Calculate the units of y produced, when 1 unit of x is produced -

y = 10 - x = 10 - 1 = 9

When 1 unit of x is produced then 9 units of y are produced.

Calculate the units of y produced, when 2 units of x is produced -

y = 10 - x = 10 - 2 = 8

When 2 unit of x is produced then 8 units of y are produced.

So, it can be seen that given the production possibility frontier equation, each 1 unit increase in production of x leads to decrease in production of y by 1 unit.

In other words, for increasing the production of x by 1 unit, the production of y has to be sacrificed by 1 unit.

The sacrifice indicates the opportunity cost.

Thus,

The opportunity cost of producing one more unit of good x is 1 unit of good y.