Suppose the nation of Arcadia produces only two goods, teapots and surfboards. If Arcadia produces only teapots, it can make 80 per day. If Arcadia produces only surfboards, it can make 30 per day. What is the opportunity cost of 1 teapot in Arcadia?

Question

Quizplus · Accepted Answer

The opportunity cost of a teapot is the amount of surfboards that must be given up to produce one additional teapot.

To find the opportunity cost, we need to determine the slope of the production possibilities frontier (PPF). The PPF shows the maximum amount of teapots that can be produced given a certain number of surfboards produced, and vice versa.

To find the slope, we can use the formula:

(change in teapots) / (change in surfboards)

From the information provided, we know that if Arcadia produces only teapots, it can make 80 per day, and if it produces only surfboards, it can make 30 per day. This means that the PPF has a slope of:

(80-0) / (0-30) = -2.67

This means that for Arcadia to produce one additional teapot, it must give up 2.67 surfboards.

Therefore, the answer is A) 3/8 of a surfboard.

Suppose the Nation of Arcadia Produces Only Two Goods, Teapots