Question

Suppose that workers in a country can produce either yams or potatoes, and that all inputs are equally well-suited to the production of both goods. If all workers produce yams, 40 million yams can be produced. If all workers produce potatoes, 20 million potatoes can be produced.

The opportunity cost of producing a potato is ______ yam(s).
The opportunity cost of producing a yam is ______ potato(es).
Suppose that there is an increase in resources that shifts the horizontal intercept to 40 million potatoes.
The opportunity cost of potatoes is now ____ yam(s).

Answer 1

Answer: (a) 2 yams

(b) 0.5 potato

(c) 1 yam

Step-by-step explanation:

Given that,

In a country,

All workers produce yams, 40 million yams can be produced and if all workers produce potatoes, 20 million potatoes can be produced.

Opportunity cost is the benefit that is foregone for an individual by choosing one alternative over other alternatives available to him.

If the opportunity cost is lower for an individual then this will benefit him whereas if the opportunity cost is higher then this will not benefit the individuals.

Therefore,

Opportunity cost of producing a potato =
`(40)/(20)`

= 2 yams

Opportunity cost of producing a yam =
`(20)/(40)`

= 0.5 potato

If there is an increase in resources that shifts the horizontal intercept to 40 million potatoes then,

Opportunity cost of potatoes =
`(40)/(40)`

= 1 yam