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10 March, 19:47

Pierre can produce either a combination of 20 bow ties and 30 neckties or a combination of 35 bow ties and 15 neckties. If he now produces 35 bow ties and 15 neckties, what is the opportunity cost of producing an additional 15 neckties

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  1. 10 March, 20:20
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    Answer: Opportunity cost of 15 neckties is 15.

    Explanation: Opportunity cost refers to the cost of the next best alternative foregone. Per unit opportunity cost can be calculated as the number of units of a good lost divided by the number of units of the good gained.

    Combinations available are (20 bow ties, 30 Neckties) or (35 bow ties, 15 neckties)

    When he chooses 35 bow ties and 15 neckties, he is forgoing 20 bow ties and 30 neckties.

    So,

    Units of bow ties gained = 15

    Units of neckties foregone = 15

    Therefore, the opportunity cost of producing 1 additional necktie is 1.

    Therefore, opportunity cost of producing 15 additional neckties will be 15.
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