Opportunity Cost as a Ratio (Joe's Smoothie Bar)?
Joe's Production Possibilities
Item Minutes to Produce 1 Quantity per hour
Smoothies 10 6
Salads 2 30
How do you calculate the OC (opportunity cost) in this situation? The Macroeconomics book has the answer, but I don't understand how to get it.
The OC of producing 1 smoothie is 5 salads.
The OC of producting 1 salad is 1/5 of a smoothie.
How do you decide whether to divide smothies/ salads or salads/smoothies? I'm having a hard time wrapping my mind around this. I orginally thought this was the solution...
The OC of producing 1 smoothie is 1/5 salads.
The OC of producting 1 salad is 5 of a smoothie.
Is there a formula that will help me if I run into a similar problem in the future?
Thanks for any help in advance!
Sorry it doesn't seem the table came out right so I'll type the worded version.
Joe also produces both smoothies and salads. Joe's bar is smaller than Liz's, and he has only one blender-a slow, old machine. Even if Joe uses all his resources to produce smoothies, he can produce only 6 an hour. But Joe is pretty good in the salad department, so if he uses all his resources to make salads, he can produce 30 an hour.
Joe's ability to make smoothies and salads is the same regardless of how he splits an hour between the two tasks. H can make a salad in 2 minutes or a smoothie in 10 minutes. For each additional smoothie Joe Produces, he must decrease his production of salads by 5. And for each additional salad Joe produces, he must decrease his production of smoothies by 1/5 of a smoothie.
- Anonymous3 years ago
You should consider the formula U = (E-mc^2)^2 + (F-ma)^2 to determine the opportunity cost as a ratio.