Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X. What is the opportunity cost of producing a tenth Viking hat (i.e., going from a production level of nine Viking hats to a production level of 10 Viking hats)?

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Quizplus · Accepted Answer

The opportunity cost of producing one more Viking hat is the amount of fish that must be given up. The equation Y = 50 - 2X shows that for each additional Viking hat produced, 0.5 units of fish are sacrificed (since the slope is -2, meaning 2 units of fish for every 1 unit of Viking hat, but we are considering the inverse).

Iceland Produces Two Goods: Viking Hats (Y) and Fish (X)