Saturday, December 26, 2009

How do you figure out opportunity cost?

Suppose that a farmer has land that can produce 20 bushels of corn per acre or 10 bushels of wheat per acre. She currently is producing 100 bushels of corn and 100 bushels of wheat.


What is the opportunity cost to the farmer, measured in bushels of corn, of producing an additional 10 bushels of wheat?How do you figure out opportunity cost?
Your opportunity cost of taking some course of action is the value of the best alternative option foregone to take that action.How do you figure out opportunity cost?
Opportunity cost of 10 bushels of wheat is equal to 20 bushels of corn, as this is the lost production by producing wheat.

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