Final answer:
Opportunity cost is crucial in understanding the trade-offs involved in production decisions and is represented by the slope of the production possibility frontier (PPF). For the USA, the opportunity cost of producing additional oil is two bushels of corn, while for Saudi Arabia, it's 1/4 bushel of corn per barrel of oil.
Step-by-step explanation:
The opportunity cost is a key concept in economics that refers to the cost of forgoing the next best alternative when making a decision. In production possibility frontiers (PPF), the slope of the curve illustrates the opportunity cost. If we consider two products, such as oil and corn, and a country can produce one product only by giving up the production of the other, the opportunity cost is expressed as the slope of the PPF. For the United States, every additional barrel of oil produced has an opportunity cost of two bushels of corn, since the slope is 1/2. Conversely, Saudi Arabia has an opportunity cost of 1/4 bushel of corn for every additional barrel of oil produced due to its different slope on the PPF.
The opportunity cost can be visualized on a graph and is pivotal for understanding how a firm or country can optimize its resources. For instance, Saudi Arabia has a lower opportunity cost to produce oil compared to corn, suggesting that it would be more efficient for the country to allocate more resources to oil production. When firms or countries understand their production possibilities and opportunity costs, they can make informed decisions on how to allocate their scarce resources most effectively.