Final answer:
Opportunity cost in the context of pizza crust production is the forgone alternative uses of the resources that go into making the pizza crust. Pricing for the pizza involves the sum of production costs and desired profit, which then dictates a point on the firm's supply curve.
Step-by-step explanation:
The opportunity cost of an item is what you give up to get that item. In the context of pizza crust production, the opportunity cost is not about a specific formula but rather involves analyzing the costs of factors that go into making the pizza crust, which includes ingredients such as dough and other indirect costs such as the pizza oven, shop rent, and wages.
When a firm sets the price for pizza, they consider the cost of production at the margin and their desired profit. The cost of production includes all the variable costs like ingredients and fixed costs such as equipment and rent. The second component is the desired profit, which is influenced by the profit margins typical in the business. To calculate the price, you add these two components.
To understand a firm's pricing decision, one must also examine how this price interacts with the supply and demand dynamics, which is demonstrated on a supply curve.