Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X. What is the opportunity cost of producing a tenth unit of fish ?

Question

Quizplus · Accepted Answer

The opportunity cost of producing one more unit of fish is the slope of the PPF, which is the change in Y (Viking hats) for a change in X (fish). The equation Y = 50 - 2X shows that for each additional unit of fish, 2 Viking hats are forgone. Thus, the opportunity cost of producing a tenth unit of fish is 2 Viking hats.

Iceland Produces Two Goods: Viking Hats (Y) and Fish (X)