Question

If the output Y1 decreases by 500 units and output Y2 increases by 500 units when some resources are shifted from the production of Y1 to the production of Y2, then the marginal opportunity cost is:

• A. 0.75
• B. 0.80
• C. 1.00
• D. 0.20

Hint:

Marginal Opportunity Cost = Change in Y1 / Change in Y2

Answer 1

The Correct Option is C

The marginal opportunity cost represents the amount of one good that must be forgone to produce one additional unit of another good. In this scenario, a decrease of 500 units of Y1 leads to an increase of 500 units of Y2. Thus, the marginal opportunity cost of producing one unit of Y2 is 500/500 = 1.