# calculating opportunity costs, production possibility

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There are five exercises in this solution set. The problem set is attached. For convenience sake, I am providing the question in Exercise 1: Use the following production possibility tables for war goods and civilian goods.

Production Alternatives

Type of Production A B C D E

Automobiles 0 2 4 6 8

Missiles 30 22 18 10 0

If the economy is at point C, what is the cost of one more automobile? What is the cost of one more missile?

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The expert calculates the opportunity costs and production possibilities. Production alternatives are given for convenience sakes.

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Exercise 1:

In order to explain the math I have assigned variables as follows (note the capital letter represents the column and the lower case letter represents the good):

A B C D E

Aa Ba Ca Da Ea

Am Bm Cm Dm Em

If the economy is at the point C, what is the cost of one more automobile?

Answer: The cost of one more automobile is the opportunity cost of foregoing the production of another missile. Therefore the cost of one more automobile is (Cm-Dm)/(Da-Ca). The answer being (18-10)/(6-4)=4. The cost of producing one more automobiles is 4 missiles.

If the economy is at the point C, what is the cost of one more missile?

Answer: The cost of one more missile is the opportunity cost of foregoing the production of another automobile. Therefore the cost of one more missile is (Ca-Ba)/(Bm-Cm). The answer ...

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