Question

Two groups of people, the Yellow Group and the Orange Group, suddenly find themselves in a world where there are only two 'production opportunities': pumping water and picking berries.

After a little while the Yellow Group has learned that it seems to produce about 2 gallons per hour while pumping water and about 8 berries per hour while picking.


Meanwhile the Orange Group has learned that it seems to produce about 1 gallon per hour while pumping water and about 3 berries per hour while picking.


If we were able to make production decisions that were efficient from the perspective of both groups combined, what would we consider to be the opportunity cost of producing one gallon of water?


3 berries


4 berries


25 cents


33⅓ cents

Answer 1

3 berries

Step-by-step explanation:

Opportunity costs for the Orange group:

Opportunity cost of pumping 1 gallon of water = 3/1 = 3 berries

Opportunity cost of picking 1 berry = 1/3 = 0.333 gallons of water

Opportunity costs for the Yellow group:

Opportunity cost of pumping 1 gallon of water = 8/2 = 4 berries

Opportunity cost of picking 1 berry = 2/8 = 0.25 gallons of water

Opportunity cost for both groups combined:

Opportunity cost of pumping 1 gallon of water = 3 berries (Orange group should pump water since opportunity cost is lower)

Opportunity cost of picking 1 berry = 0.25 gallons of water (Yellow group should pick berries since opportunity cost is lower)

Opportunity costs are the extra costs or benefits lost resulting from choosing one investment or activity over another alternative. In this case, people can either pump water or pick berries, but they cannot do both at the same time. When they are pumping water, the opportunity cost is the amount of berries that they will not be able to collect, and vice versa.