Assume a society can produce either olives or grapes. If the marginal rate of transformation of bushels of olives into bushels of grapes is 0.2, then the opportunity cost of olives is
A) the 5 bushels of olives that must be forgone.
B) the 5 bushels of grapes that must be forgone.
C) the 0.2 bushels of olives that must be forgone.
D) the additional 0.2 gallons of olives that can be produced.

Question

Quizplus · Accepted Answer

The marginal rate of transformation (MRT) indicates how many units of one good must be forgone to produce an additional unit of another good. An MRT of 0.2 means that to produce one more bushel of grapes, 0.2 bushels of olives must be forgone. Therefore, to produce one bushel of olives, 5 bushels of grapes must be forgone, making the opportunity cost of producing olives 5 bushels of grapes.

Assume a Society Can Produce Either Olives or Grapes