Use the following to answer question(s):
Exhibit: Production Possibilities Curve for Firms A and B

-(Exhibit: Production Possibilities Curve for Firms A and B. In Firm A, the opportunity cost of producing 1 more unit of X in terms of Y:
A) is equal to the opportunity cost in Firm B of producing 1 more unit of X in terms of Y.
B) is less than the opportunity cost in Firm B of producing 1 more unit of X in terms of Y.
C) is greater than the opportunity cost in Firm B of producing 1 more unit of X in terms of Y.
D) cannot be determined.

Question

Use the following to answer question(s): 
Exhibit: Production Possibilities Curve for Firms A and B
 
-(Exhibit: Production Possibilities Curve for Firms A and B. In Firm A, the opportunity cost of producing 1 more unit of X in terms of Y:
A) is equal to the opportunity cost in Firm B of producing 1 more unit of X in terms of Y. 
B) is less than the opportunity cost in Firm B of producing 1 more unit of X in terms of Y. 
C) is greater than the opportunity cost in Firm B of producing 1 more unit of X in terms of Y. 
D) cannot be determined.

Quizplus · Accepted Answer

The opportunity cost of producing 1 more unit of X in terms of Y is the slope of the production possibilities curve. The slope of the production possibilities curve is equal to the absolute value of the ratio of the marginal product of X to the marginal product of Y. The marginal product of X is the change in output of X resulting from a one-unit increase in the input of X, holding the input of Y constant. The marginal product of Y is the change in output of Y resulting from a one-unit increase in the input of Y, holding the input of X constant. The absolute value of the ratio of the marginal product of X to the marginal product of Y is the number of units of Y that must be given up to produce one more unit of X. In Firm A, the slope of the production possibilities curve is 2, which means that the opportunity cost of producing 1 more unit of X in terms of Y is 2. In Firm B, the slope of the production possibilities curve is 1, which means that the opportunity cost of producing 1 more unit of X in terms of Y is 1. Therefore, the opportunity cost of producing 1 more unit of X in terms of Y is greater in Firm A than in Firm B.

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