Question

If Dave can produce 200 large pizzas per hour and 0 medium pizzas per hour or 0 large pizzas per hour and 100 medium pizzas per hour and faces a linear production possibilities curve for his store, the opportunity cost of producing an additional medium pizza is ______ large pizzas.

A) 0
B) 1
C) 2
D) 3

Answer 1

By comparing the ratio of production rates of large to medium pizzas (200:100), it is determined that the opportunity cost of producing an additional medium pizza is 2 large pizzas (Option C).

Step-by-step explanation:

If Dave can produce 200 large pizzas per hour and 0 medium pizzas per hour or 0 large pizzas per hour and 100 medium pizzas per hour and faces a linear production possibilities curve for his store, the opportunity cost of producing an additional medium pizza is ______ large pizzas. The answer to this is found by understanding the trade-offs between the two types of pizzas. Given a linear production possibilities curve and the provided production rates, we set up a ratio where the production of one good trades off linearly for the production of the other. In other words, for every 1 medium pizza produced, the loss in production is the ratio of the production rates of large to medium pizzas.

In this case, since Dave can produce 200 large pizzas or 100 medium pizzas per hour, the ratio is 200 large pizzas : 100 medium pizzas, which simplifies to 2:1. Therefore, the opportunity cost of producing one additional medium pizza is 2 large pizzas.

The correct answer is C) 2.