Suppose nation A produces only two goods, apples and oranges . If nation A produces only apples, it can make 12 apples per day. If nation A produces only oranges, it can make 36 oranges per day. If the country has a constant production trade- off between apples and oranges, then the opportunity cost of one orange in nation A is:

Question

Quizplus · Accepted Answer

The opportunity cost of one orange refers to how many apples nation A must give up in order to produce one orange. To find this, we need to calculate the slope of the production possibilities curve, which represents the trade-off between apple and orange production. The slope is calculated as the change in the quantity of apples divided by the change in the quantity of oranges.

The quantity of apples changes from 12 to 0 (a decrease of 12) when the quantity of oranges changes from 0 to 36 (an increase of 36). So the slope is (-12/36) which simplifies to -0.33. This means that nation A must give up 0.33 apples for every one additional orange produced.

Therefore, the opportunity cost of one orange in nation A is 0.33 apples. The answer is B.

Suppose Nation a Produces Only Two Goods, Apples and Oranges