# What is Opportunity Cost? Explain with the Help of a Numerical Example. - Economics

What is opportunity cost? Explain with the help of a numerical example.

#### Solution

Opportunity cost refers to the value of a factor in its next best alternative use. Assuming that resources and technology remain constant, an economy is producing Good X and Good Y. Different combinations of production of Good X and Good Y are given in the production possibilities schedule:

 Production Possibilities Good X Good Y MOC=(DeltaY)/(DeltaX) I 0 30 - II 1 27 -3 III 2 21 -6 IV 3 12 -9 V 4 0 -12

At the production point II, 1 unit of Good X and 27 units of Good Y are produced. To produce an additional unit of Good X, 3 units of Good Y must be sacrificed.

Here, the opportunity cost is

Opportunitycost from ItoII (DeltaY)/(DeltaX)="Amount of good Ysacrifed"/"Amount of good Xgained"=(27-30)/(2-1)=-3

Thus, the opportunity cost of getting an additional unit of Good X is 3 units of Good Y.

Concept: Concept of Opportunity Cost
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2011-2012 (March) Delhi Set 1

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