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 decrease in opportunity costs as average costs decrease.
B) a misallocation of resources.
C) an increase in opportunity cost for Tornados.
D) an outward shift in the PPF.

Question

Quizplus · Accepted Answer

Ordering one more Tornado would increase the opportunity cost because resources would have to be reallocated from the production of other goods or services to produce the additional Tornado. This reflects the economic principle that increasing production of one good results in increasing opportunity costs due to the need to use resources that could have been employed elsewhere.

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