BAE, a British defense company, has the contract to produce Tornado aircraft for the Royal Air Force. BAE is producing the aircraft at the lowest possible cost. If the RAF orders one more Tornado, there will be
A) a misallocation of resources.
B) a decrease in opportunity costs as average costs decrease.
C) an outward shift in the PPF.
D) an increase in opportunity cost for Tornados.

Question

Quizplus · Accepted Answer

If the RAF orders one more Tornado, BAE would have to increase production and possibly incur higher costs, leading to an increase in opportunity cost for producing Tornados. This is because the additional units will require more resources, either through hiring more workers or using more materials, which could have been used to produce other goods, leading to a higher opportunity cost.

BAE, a British Defense Company, Has the Contract to Produce