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:

To find Marginal Opportunity Cost quickly, remember:
\[ \text{MOC} = \frac{\text{Loss}}{\text{Gain}} \] If the loss and the gain are equal, the opportunity cost is always exactly 1.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The Marginal Opportunity Cost (MOC) represents the quantity of one product (\(Y_1\)) that must be sacrificed to produce an additional unit of another product (\(Y_2\)) using a fixed set of resources.
It is also referred to as the Marginal Rate of Product Transformation (MRPT).
Key Formula or Approach:
The mathematical formula for calculating Marginal Opportunity Cost is:
\[ \text{MOC} = \frac{\Delta \text{Sacrificed Output}}{\Delta \text{Gained Output}} = \frac{-\Delta Y_1}{\Delta Y_2} \]

Step 2: Detailed Explanation:
Let us substitute the values from the problem into this formula:
1. The decrease in output of \(Y_1\) (the sacrificed good) is:
\[ \Delta Y_1 = 500 \text{ units} \] 2. The increase in output of \(Y_2\) (the gained good) is:
\[ \Delta Y_2 = 500 \text{ units} \] 3. Calculating the ratio:
\[ \text{MOC} = \frac{500}{500} = 1.00 \] This value indicates that to produce one additional unit of \(Y_2\), the economy must sacrifice exactly one unit of \(Y_1\).
Therefore, the marginal opportunity cost is 1.00.

Step 3: Final Answer:
The marginal opportunity cost is 1.00, matching Option (C).