Question

Bruce and Sheila both produce meat pies and bottles of tomato sauce;

- Constant opportunity costs;
- Bruce can produce 100 pies or 100 bottles of sauce;
- Sheila can produce 400 pies or 200 bottles of sauce; and
- In autarky (i.e. self-sufficiency without trade) each person produces both goods and that the preferred mix before trade (autarky) for Bruce is ( 80 ) pies and (20) bottles of sauce. For Sheila the preferred mix in autarky is (300) pies and (50) bottles of sauce. Use the information above to answer the following question:
What is the opportunity cost of 1 pie for Bruce?

Answer 1

The opportunity cost of 1 pie for Bruce is 0.25 bottles of sauce. The opportunity cost of 1 pie for Bruce is 1 bottle of sauce, which represents a one-to-one trade-off between producing pies and bottles of sauce.

Step-by-step explanation:

The opportunity cost of 1 pie for Bruce can be determined by considering his production possibilities. Bruce can produce 100 pies or 100 bottles of sauce, while Sheila can produce 400 pies or 200 bottles of sauce. In autarky, Bruce prefers to produce 80 pies and 20 bottles of sauce, while Sheila prefers to produce 300 pies and 50 bottles of sauce.

To find Bruce's opportunity cost of 1 pie, we can calculate the slope of his production possibilities curve. The slope is determined by the change in one output divided by the change in the other output. For Bruce, the change in the number of pies is 80-0=80, and the change in the number of sauce bottles is 20-0=20. So, the slope (opportunity cost) of 1 pie for Bruce is 20/80 = 0.25 bottles of sauce.

The opportunity cost of 1 pie for Bruce is 1 bottle of sauce, which represents a one-to-one trade-off between producing pies and bottles of sauce.

The opportunity cost of producing one item is the number of other items that could have been produced instead. For Bruce, who can produce either 100 pies or 100 bottles of sauce, the opportunity cost of producing 1 pie is 1 bottle of sauce, since producing one more pie means producing one less bottle of sauce, and vice versa. This represents constant opportunity costs as the trade-off between the two goods remains constant.