+- Online Degrees and CLEP and DSST Exam Prep Discussion (https://degreeforum.net/mybb)
+-- Forum: Main Category (https://degreeforum.net/mybb/Forum-Main-Category)
+--- Forum: General Education-Related Discussion (https://degreeforum.net/mybb/Forum-General-Education-Related-Discussion)
+--- Thread: Opportunity cost problem! (/Thread-Opportunity-cost-problem)
Opportunity cost problem! - tennischamp1 - 06-01-2012
I cant seem to get opportunity cost problems where I have to come up with a ratio. Can someone help me solve this problem?
Gordon can produce either 6 birdhouses and 3 porch swings in an hour or 3 birdhouses and 4 porch swings in a hour. What is Gordon's opportuniy cost of a birdhouse?
I know the answer is 1/3 of a porchswing, but how do I find this out?
Thanks!
Opportunity cost problem! - JDM - 06-02-2012
No matter which option he chooses, he's going to end up with a minimum of 3 porch swings and 3 birdhouses.
If he goes with option A (6 birdhouses and 3 porch swings), he gets an extra 3 birdhouses, above and beyond the base of 3 and 3 that he gets with either choice, but no more porch swings.
If he goes with option B (3 birdhouses and 4 porch swings), he gets an extra porch swing, above and beyond his base of 3 and 3, but no more birdhouses.
So the two options basically give him the choice of producing _either_ 3 more birdhouses _or_ one more porch swing. That's where the 1/3 comes from. Making three extra bird houses means he gives up the opportunity to make one extra porch swing. Economists say the "opportunity cost" of three extra bird houses = one porch swing, which is another way of saying that getting those three bird houses "costs" him one porch swing, or, alternatively, that getting one extra porch swing "costs" him three bird houses.
If the opportunity cost of three birdhouses is one porch swing, then the opportunity cost of one extra bird house is 1/3 of a porch swing.
Opportunity cost problem! - tennischamp1 - 06-02-2012
Now I get it! Thanks!
Opportunity cost problem! - ryoder - 06-03-2012
Read sparknotes. They rock.
SparkNotes: International Trade: Trade Basics