Explain the concept of marginal opportunity cost using a numerical example.
Explain the concept of marginal opportunity cost using a numerical example.
The marginal opportunity cost can be defined as the ratio of number of units of a good sacrificed to produce an additional unit of another good. It is also known as Marginal Rate of Transformation (MRT).
Marginal opportunity cost of a good in terms of the other good can be estimated as:
MOC(MRT)=△loss of output of good Y△gain of output of good X=△Y△X=Y2−Y1X2−X1
Marginal opportunity signifies the rate of sacrifies of good Y
CombinationsGood XGood YMOCA120−B2182C3153D4114
Example: In the given schedule, if we want to move from combination A to combination B, we will produce one additional unit of X, but we will have to forgo 2 units of Y. The marginal opportunity cost of X in terms of Y at this stage is 2 units, similarly for other combinations too can be worked out.
The marginal opportunity cost can be defined as the ratio of number of units of a good sacrificed to produce an additional unit of another good. It is also known as Marginal Rate of Transformation (MRT).
Marginal opportunity cost of a good in terms of the other good can be estimated as:
MOC(MRT)=△loss of output of good Y△gain of output of good X=△Y△X=Y2−Y1X2−X1
Marginal opportunity signifies the rate of sacrifies of good Y
CombinationsGood XGood YMOCA120−B2182C3153D4114
Example: In the given schedule, if we want to move from combination A to combination B, we will produce one additional unit of X, but we will have to forgo 2 units of Y. The marginal opportunity cost of X in terms of Y at this stage is 2 units, similarly for other combinations too can be worked out.
