Australia can use all its resources to produce 250 DVDs or 500 shoes.China can use all of its resources to produce 30 DVDs or 300 shoes.The opportunity cost of producing a DVD in Australia is
A)20 shoes.
B)1 DVD.
C)2 shoes.
D)500 shoes.
E)1/2 of a shoe.

Question

Quizplus · Accepted Answer

The opportunity cost of producing a DVD in Australia is the number of shoes that could have been produced instead. In this case, Australia can produce 250 DVDs or 500 shoes, so the opportunity cost of producing one DVD is 500/250 = 2 shoes. Therefore, the best choice would be to produce shoes in Australia and trade with China for DVDs, as China has a lower opportunity cost for producing DVDs.

Australia Can Use All Its Resources to Produce 250 DVDs