Consider the production possibilities frontier in the figure shown. The opportunity cost of one cigar between points A and B is:

Question

Quizplus · Accepted Answer

The slope of the production possibilities frontier between points A and B is (10-50)/(50-0)=-0.4. This means that in order to produce one cigar, the opportunity cost is 1/(-0.4) = 2.5 cars. Therefore, the opportunity cost of one cigar between points A and B is 2.5 cars. The correct answer is therefore C: 5 cars.

As for the best choice(s), it depends on the preferences of the decision maker. However, any choice that lies on the production possibilities frontier (such as point A, B, or any point in between) is technically efficient in the sense that all resources are fully utilized. The decision maker should consider what they value more: cars or cigars, and choose a point along the production possibilities frontier that maximizes their satisfaction.

Consider the Production Possibilities Frontier in the Figure Shown