Consumer Goods Producer Goods 400 0 300 150 200 250 100 325 0 350 Use the above

Question

Consumer Goods Producer Goods 400 0 300 150 200 250 100 325 0 350 Use the above schedule to answer the following questions: Assume that the United States is operating with the above schedule and is currently producing 200 Consumer Goods and 250 Producer Goods. What is the opportunity cost of producing 25 more Producer Goods? Now assume the US is operating with the above schedule and is currently producing 200 Consumer Goods and 150 Producer Goods. What is the opportunity cost of 15 more Producer Goods? Assume the United States is currently producing 200 Consumer Goods and 250 Producer Goods. Brazil needs 50 Producer Goods to expand highways into the farming regions around Sao Paulo. They offer to trade Consumer Goods for the 50 Producer Goods. In order to get the 50 Producer Goods, the United States would have to increase production of Producer Goods from 250 to 300. What is the least amount the US should accept for the 50 Producer Goods? What is the most the United States should accept for the 50 producer Goods?

Explanation / Answer

Opportunity cost = change in producer goods/change in consumer goods = (200-100)/(325-250) = 100/75 = 1.33

Opportunity cost = change in producer goods/change in consumer goods = (200-100)/ (250-150) = 100/100 = 1

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