Suppose that two people, Michelle and James each live alone in an isolated regio

Question

Suppose that two people, Michelle and James each live alone in an isolated region. They each have the same resources available, and they grow potatoes and raise chickens. If Michelle devotes all her resources to growing potatoes, she can raise 200 pounds of potatoes per year. If she devotes all her resources to raising chickens, she can raise 50 chickens per year. (If she apportions some resources to each, then she can produce any linear combination of chickens and potatoes that lies between those extreme points. If James devotes all his resources to growing potatoes, he can raise 80 pounds of potatoes per year. If he devotes all his resources to raising chickens, he can raise 40 chickens per year. (If he apportions some resources to each, then he can produce any linear combination of chickens and potatoes that lies between those extreme points.)



Potatoes
Chickens

Michelle
200
50

James
80
40


•What is Michelle’s opportunity cost of producing potatoes?

Explanation / Answer

From this scenario, we can tell michelle can produce 1 chicken for every 4 poetatoes or 1 potatoe for every 1/4 chicken. Therefore, her opportunity cost for producing potatoes is 1/4 chicken. This is determined by solving the fraction of 50 chickens / 200 potatoes. This gives us 1/4. James was thrown into the mix to confuse us giving unnecessary information. Opportunity cost is defined as the next best alternative one could be doing with their time. In this case, if Michelle is not producing potatoes she is raising chickens. Therefore, our answer is she has an opportunity cost of 1/4 chicken

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