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CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics

An economy produces only laptops and tablets using all its resources fully and efficiently. On its production possibility frontier, it can make 100 laptops and 0 tablets, 80 laptops and 30 tablets, or 60 laptops and 50 tablets. Moving from the first point to the second, then from the second to the third, what is the opportunity cost of one tablet in laptops in each move, respectively?

The opportunity cost is about 0.67 laptops per tablet in the first move and 1 laptop per tablet in the second. Divide laptops sacrificed by tablets gained: 20/30 then 20/20. The rising cost reflects increasing opportunity cost along the frontier.

  1. AApproximately 0.67 laptops, then 1 laptopCorrect
  2. BApproximately 0.67 laptops, then 0.4 laptop
  3. C1.5 laptops, then 1 laptop
  4. D1 laptop, then 1 laptop

Explanation

First move: 20 laptops are given up for 30 tablets, so 20/30 ≈ 0.67 laptops per tablet. Second move: 20 laptops are given up for 20 additional tablets (30 to 50), so 20/20 = 1 laptop per tablet. The cost rises, showing increasing opportunity cost. Option 3 inverts the first ratio.

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