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14 December, 09:11

Initially, suppose Bellissima uses 1 million hours of labor per week to produce corn and 3 million hours per week to produce jeans, while Felicidad uses 3 million hours of labor per week to produce corn and 1 million hours per week to produce jeans. Consequently, Felicidad produces 15 million bushels of corn and 20 million pairs of jeans, and Bellissima produces 8 million bushels of corn and 48 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of corn and jeans it produces. What is Felicidad's oppunrtunity cost for 1 bushel of corn?

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  1. 14 December, 12:02
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    Bellisima's opportunity cost to produce 1 bushel of corn = 2 pairs of jeans

    Explanation:

    Bellisima uses 1 million hours of labor to produce corn and 3 million hours of labor to produce jeans. Produces 8 million bushels of corn and 48 million pairs of jeans.

    Production of corn per million hours of labor = 8 / 1 = 8 bushels of corn Production of jeans per million hours of labor = 48 / 3 = 16 pairs of jeans

    Felicidad uses 3 million hours of labor to produce corn and 1 million hours of labor to produce jeans. Produces 15 million bushels of corn and 20 million pairs of jeans.

    Production of corn per million hours of labor = 15 / 3 = 5 bushels of corn Production of jeans per million hours of labor = 20 / 1 = 20 pairs of jeans

    The opportunity cost refers to the extra costs or benefits lost form choosing one activity or investment over another alternative.

    Bellisima's opportunity cost to produce 1 bushel of corn = 16 pairs of jeans / 8 bushels of corn = 2 pairs of jean per bushel of corn. Bellisima's opportunity cost to produce 1 pair of jeans = 8 bushels of corn / 16 pairs of jeans = 0.5 bushels of corn per pair of jean.

    Felicidad's opportunity cost to produce 1 bushel of corn = 20 pairs of jeans / 5 bushels of corn = 4 pairs of jean per bushel of corn. Felicidad's opportunity cost to produce 1 pair of jeans = 5 bushels of corn / 20 pairs of jeans = 0.25 bushels of corn per pair of jean.
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