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:
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:
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Marginal Opportunity Cost = Change in Y1 / Change in Y2
Updated On: Jul 2, 2026
- 0.75
- 0.80
- 1.00
- 0.20
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The Correct Option is C
Approach Solution - 1
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.
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Approach Solution -2
Production possibility frontier approach:
The marginal opportunity cost of a good equals the slope of the production possibility frontier, the ratio of units of one good given up to the units of the other good gained: \( MOC = \left| \dfrac{\Delta Y_1}{\Delta Y_2} \right| \). Here resources are shifted so that \( \Delta Y_1 = -500 \) units and \( \Delta Y_2 = +500 \) units. Substituting gives \( MOC = \left| \dfrac{-500}{500} \right| = 1.00 \). Since exactly one unit of \( Y_1 \) is sacrificed for every unit of \( Y_2 \) gained, the marginal opportunity cost is 1, confirming option (3).
The marginal opportunity cost of a good equals the slope of the production possibility frontier, the ratio of units of one good given up to the units of the other good gained: \( MOC = \left| \dfrac{\Delta Y_1}{\Delta Y_2} \right| \). Here resources are shifted so that \( \Delta Y_1 = -500 \) units and \( \Delta Y_2 = +500 \) units. Substituting gives \( MOC = \left| \dfrac{-500}{500} \right| = 1.00 \). Since exactly one unit of \( Y_1 \) is sacrificed for every unit of \( Y_2 \) gained, the marginal opportunity cost is 1, confirming option (3).
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