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Math Help - microeconomics opportunity cost help!

  1. #1
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    microeconomics opportunity cost help!

    Graphing table: A B C D E
    Capital goods 0 44 66 80 86
    Consumer goods 56 42 28 14 0

    I have a question about how to find opportunity costs.

    Suppose an economy opts to produce and consume at combination 'C'.
    How would I be able to find the opportunity cost for producing 14 more consumer goods and 14 more capital goods for C? I'm getting really confused with opportunity costs and how to calculate it, because my textbook doesn't show how it's done, just the definition.

    Thanks in advance!
    Last edited by kelvinly; January 26th 2011 at 06:02 PM. Reason: too little information
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  2. #2
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    Usually you would look at the same resource that you are going to use for 14 more consumer goods and see where else it can be used to generate profit - this 'alternative' profit is your money forgone in employing this resource for your '14 more consumer goods' = opportunity costs.

    If there is no other use for this resource, the opportunity costs is zero - unless you can sell it for some $$$ instead of using it in manufacturing.
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  3. #3
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    Quote Originally Posted by Volga View Post
    Usually you would look at the same resource that you are going to use for 14 more consumer goods and see where else it can be used to generate profit - this 'alternative' profit is your money forgone in employing this resource for your '14 more consumer goods' = opportunity costs.

    If there is no other use for this resource, the opportunity costs is zero - unless you can sell it for some $$$ instead of using it in manufacturing.
    ah, sorry i meant to say how would it be calculated
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  4. #4
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    Did you want to understand opportunity cost concept or you wanted for someone to calculate them for you?....

    Anyways, I am working from first principles, and unfortunately I cannot guess the rest of the question. You only showed two lines, Capital goods 66 and Consumer goods 28, without even explaining what the numbers mean here (quantities? prices? total values? marginal something?...)
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  5. #5
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    Quote Originally Posted by Volga View Post
    Did you want to understand opportunity cost concept or you wanted for someone to calculate them for you?....

    Anyways, I am working from first principles, and unfortunately I cannot guess the rest of the question. You only showed two lines, Capital goods 66 and Consumer goods 28, without even explaining what the numbers mean here (quantities? prices? total values? marginal something?...)
    Yeah I actually want to understand and learn how to calculate it too. Those two numbers were just an example but I never knew I needed more in the table to figure out the question though, my bad!
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  6. #6
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    Disclaimer: I am not a microeconomics teacher. I studied it but I am best in finance and accounting which also uses opportunity costs alot. So, if anyone is from economics pls jump in.

    So, if I understand you correctly, we are producing at point C, which is 66 units of capital goods AND 28 units of consumer goods. (There is an 'and' there, right?) If we were to produce 14 more units of consumer goods, that means, moving to point B, then we would have to reduce our capital goods output by 66-44=22 units of capital goods - this is an alternative use for the resources we deploy to produce additional 14 units of consumer goods, and, this can be called our opportunity costs.

    If we were to produce 14 more units of capital goods instead, ie move to point D, we would have to reduce the output of consumer goods by 14 (28-14) and this is our opportunity costs in this case.

    I don't know what your textbook saying, but the general definition is 'opportunity cost is the cost related to the next-best choice available to someone who has picked among several mutually exclusive choices'. Your choice to produce either additional 14 of consumer goods or 14 of capital goods are mutually exclusive, and therefore, each choice you make will cost you the opportunity forgone to produce the relevant amount of the other good (in your case, you have different outputs specified for each point C, D, B).

    What is the textbook saying by the way?...
    Last edited by Volga; January 27th 2011 at 02:26 PM.
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