3. Calculate the opportunity cost - LO3

a) You own a building that has two possible uses: a grocery store, and a clothing

store. The value of the building in each use is $ $7,000; and $10,000,

respectively. You decide to open a grocery store. What is the opportunity cost

of using this building for a grocery store?

b) Stephanie has $200 left over this week, and she wants to contribute to a

charitable cause. She can either feed 20 homeless persons two meals in a day

or she can provide shelter for 10 homeless persons one night. What is the

opportunity cost of Stephanie using all her money to shelter homeless people?

c) Mexico can cultivate either 120 bushels of Oranges per acre or 200 bushels of

Bananas per acre. What is the opportunity cost of cultivating 1 bushel of

Oranges per acre?

4.Show your work

1) Draw the graph and label it properly and find the slope for the following set of

data between points A and B, E and F

Point X Y

A 100 50

B 200 75

C 300 100

D 400 100

E 500 75

F 600 50

2) Draw a graph and label it properly using the information given in the table below

and find the value of Y-Intercept and the slope.

Aggregate Income ($) Aggregate Consumption ($)

X Y

0 80

50 125

100 170

150 215

200 260

1.Nixon can catch 20 pounds of fish an hour or pick 30 pounds of fruit an hour. Calculate

Nixon's opportunity cost of a pound of fruit.

2.The opportunity cost of producing one ton of wheat for Country Gamma is 6 tons of corn.

The opportunity cost of producing one ton of wheat for Country Beta is 4 tons of corn. Which

country has the comparative advantage in the production of wheat?

3.Nut House produces only cashews and almonds. The table below

shows the maximum possible output combinations of the two nuts using all resources and currently available technology. Answer the questions that follow the table.

Possible Output Almonds (X) Cashews (Y)

Combinations (thousands of pounds) (thousands of pounds)

A 0 35

B 20 30

C 35 25

D 47 20

E 57 15

F 64 10

G 68 5

H 70 0

a. Graph Nut House's production possibilities frontier. Put almonds on the horizontal axis and

cashews on the vertical axis. Mark all output combination points cashews and almonds on the

graph.

b. Suppose Nut House is currently producing at point D. What is the opportunity cost of

producing an additional 10,000 pounds of almonds? Hint: how many pounds of cashews are

foregone or given up.

c. Find the slope values between points AB, BC, CD, DE, EF, FG, GH. As the production

moves from point A to Point H what happens to the opportunity cost (slope of the curve) of

producing more and more almonds? Does it increase, decrease, or remain constant? Show

your work and Explain your answer.

4.Refer to Table 2.

The table below shows the production of pecans and pears in Missouri and

Washington. Answer the questions that follow.

Table 2

Pecans tons per year Pears tons per year

Missouri 10,000 15,000

Washington 13,000 26,000

a. Which state has an absolute advantage in the production of Pecans?

b. Which state has an absolute advantage in the production of Pears?

c. What is Missouri's opportunity cost of producing one ton of Pecan? What is

Washington's opportunity cost of producing one ton of Pecan? Show your work.

d. What is Missouri's opportunity cost of producing one ton of Pear? What is Washington's

opportunity cost of producing one ton of Pear? Show your work.

e. Which state has a comparative advantage in the production of Pecans? Which state has a

comparative advantage in the production of Pears?

f. Sketch the production possibility frontier for both states if they produce for 2 years.

5.Suppose your expenses for this term are as follows: tuition: $28,000, room and board: $9,000, books and other educational supplies: $2,500. Further, during the term, you can only work part-time and earn $16,000 instead of your full-time salary of $42,000. What is the

opportunity cost of going to college this term, if your room and board expenses would be the

same even if you did not go to college?