Question

An economy produces two goods: wheat and rice. These could be produced in only two combinations.
Combination A: Wheat: $20,000$ tonnes; Rice: $5,000$ tonnes
Combination B: Wheat: $10,000$ tonnes; Rice: $9,000$ tonnes
What is the marginal opportunity cost of producing an extra tonne of rice at the cost of wheat? (Compare combination A with combination B)

Answer 1

Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. It the cost for the next best option chosen.

Here, Opportunity cost will be that of producing rice by sacrificing wheat production.

$Marginal$ $Opportunity$ $Cost=$ $\frac{\text{Loss of Wheat Production}}{\text{Gain of Rice Production}}$

$=$ $\frac{10,000}{4,000}$

$=$ $2.5$

Therefore, while comparing Combination A to Combination B, we get Marginal Opportunity Cost as 2.5.