📚 Learning Guide
Opportunity Cost and PPC
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If a country produces more of Good A, which is known to have a high marginal cost, what is the opportunity cost associated with this decision in terms of Good B production?

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

The total cost of Good A

B

The decrease in Good B production that could have been produced with the same resources

C

The marginal benefit obtained from Good A

D

The fixed costs of production for both goods

Understanding the Answer

Let's break down why this is correct

Answer

When a country decides to produce more of Good A, which has a high marginal cost, it means that it has to give up a significant amount of Good B. This is because resources like land, labor, and capital are limited, so using them to make more of Good A means they cannot be used to make Good B. The opportunity cost is the value of the Good B that could have been produced instead. For example, if producing an additional unit of Good A requires sacrificing the production of two units of Good B, then the opportunity cost is those two units of Good B that the country could have had. This concept helps us understand the trade-offs that come with resource allocation in an economy.

Detailed Explanation

When a country makes more of Good A, it uses resources that could have made Good B. Other options are incorrect because Some might think the total cost of Good A matters here; People might confuse marginal benefit with opportunity cost.

Key Concepts

Marginal cost
Opportunity cost of production
Topic

Opportunity Cost and PPC

Difficulty

medium level question

Cognitive Level

understand

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