A home entertainment shop sells CDs and DVDs. The production possibilities curve shown below gives the maximum combinations of these two goods that can be inventoried in the store.

-As the shop adds more and more CDs to its inventory, the number of DVDs it must give up:
A) remains the same.
B) gets larger.
C) gets smaller.
D) gets larger or smaller, depending on how many compact discs the shop started out with.

Question

A home entertainment shop sells CDs and DVDs. The production possibilities curve shown below gives the maximum combinations of these two goods that can be inventoried in the store.
 
-As the shop adds more and more CDs to its inventory, the number of DVDs it must give up:
A) remains the same. 
B) gets larger. 
C) gets smaller. 
D) gets larger or smaller, depending on how many compact discs the shop started out with.

Quizplus · Accepted Answer

This scenario describes the concept of opportunity cost in economics. As the shop adds more CDs (a decision that reflects increasing marginal cost), the number of DVDs it must give up (the opportunity cost) gets larger due to the principle of increasing opportunity costs. This principle states that as production of one good increases, the opportunity cost of producing an additional unit (in terms of the other good that must be forgone) also increases.

A Home Entertainment Shop Sells CDs and DVDs