Question

The city of Austin can buy roads or light rail. If 10 miles of roads cost $1 million and 2 miles of light rail cost $10 million, what is the city's opportunity cost of 20 miles of light rail?

Answer 1

1000 miles of roads cost

Step-by-step explanation:

We know, opportunity cost is the best alternative chosen from many alternative to reduce the cost. However, it is the cost of one good in terms of other good or service. According to the question, it is a production possibility frontier (PPF). In that case, the calculation of opportunity cost is different.

Calculation:

10 miles of roads cost = $1,000,000

1 mile of road cost = $100,000

Again, 2 miles of light rail cost = $10,000,000

1 mile of light rail cost = $10,000,000 ÷ 2 = $5,000,000

Therefore, 1 mile of light rail's cost = 1 mile of light rail's cost ÷ 1 mile of road's cost

1 mile of light rail's cost = $5,000,000 ÷ $100,000

or, 1 mile of light rail's cost = 50 miles of road's cost

therefore, 20 mile of light rail = 50 miles of roads cost × 20 = 1000 miles of road's cost.