Beth consumes two goods, x₁and x₂, and her income is $120. The price of x₁is $10, and the price of
X₂is $5. The opportunity cost of x₂is:

Question

Beth consumes two goods, x₁and x₂, and her income is $120. The price of x₁is $10, and the price of X₂is $5. The opportunity cost of x₂is:

Quizplus · Accepted Answer

The opportunity cost of one good in terms of another is determined by their relative prices. Since the price of $x_2$ is $5 and the price of $x_1$ is $10, the opportunity cost of purchasing one unit of $x_2$ instead of $x_1$ is $5/$10 = 0.5 units of $x_1$.

Beth Consumes Two Goods, X1 and X2, and Her Income

Beth Consumes Two Goods, X₁and X₂, and Her Income