Question

A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the opportunity cost of an apple?A. 4/5 of a bananaB. 1 appleC. 5/4 of a bananaD. 4 bananasE. none

Answer 1

A. 4/5 of a banana

Explanation:

Given that a country produces only apples and bananas.

Moving from point A to point B along its production possibilities frontier, 5 apples are gained and 4 bananas are forgone

i.e. preferences for 5 apples are equal to 4 bananas

5 apples = 4 bananas

Let us calculate unit rate i.e. how much 1 apple is equivalent to. this would give the opportunity cost, namely the cost of gain of 1 apple

1 apple=
`(4)/(5)` banana

Hence opportunity cost = 4/5

i.e. Option A is right