A firm can produce either 10,000 units of Product X plus 5,000 units of Product Y or 8,000 units of Product X plus 6,000 units of Product Y.
Describe the opportunity cost of producing an extra unit of Product Y.
(a). The firm gains 1,000 units of Product Y (from 5,000 to 6,000) at the opportunity cost of 2,000 units of Product X (from 10,000 to 8,000). Hence, the opportunity cost of producing one extra unit of Product Y is 2,000:1,000 = 2:1 = 2 units of Product X.
(b). Distinguish between growth in production possibilities and actual growth.