Question

An economy can produce 1lb of cheese for 1h of labor and 1 gallon of wine for 2h of labor. What is the opportunity cost of cheese? A. The time it takes to produce 1 pound of cheese

B. The time it takes to produce 1 gallon of wine
C. The difference in time between producing 1 pound of cheese and 1 gallon of wine
D. The cost of making both cheese and wine

Answer 1

The opportunity cost of producing cheese is the time it takes to produce 1 gallon of wine, as that is the alternative good that could have been produced with the labor spent on cheese.

Step-by-step explanation:

The opportunity cost of producing 1lb of cheese is the amount of another good that must be forgone or sacrificed to produce 1lb of cheese. In the given scenario, it takes 1 hour of labor to produce 1lb of cheese and 2 hours to produce 1 gallon of wine. Therefore, in the time it takes to produce 1lb of cheese, one could have instead produced half a gallon of wine (since 1 hour is half of the 2 hours required to produce a full gallon of wine).

The correct answer is B. The opportunity cost of cheese is the time it takes to produce 1 gallon of wine because that is the alternative product that could have been made with the labor devoted to cheese production. This is based on the principle that the opportunity cost is what you must give up to get something else.

In broader economic terms, the concept is related to the trade-offs faced by an economy, which must decide how to allocate limited resources to various uses.