Question

Difficulty: MediumOpportunity Cost

A bakery in Benin City allocates its daily supply of flour to produce either 100 loaves of bread or 50 meat pies. Currently, the bakery produces 20 meat pies. If the baker decides to increase meat pie production to 35 meat pies, what is the opportunity cost of this decision in terms of loaves of bread foregone?

Answer: 30 loaves

Answer

The opportunity cost of producing 15 additional meat pies is 30 loaves of bread foregone.

Opportunity cost measures the quantity of one good foregone to produce additional units of another good. Here, each meat pie requires giving up 2 loaves of bread (

100 \div 50 = 2

). Increasing pie production by 15 units (from 20 to 35) requires giving up

15 \times 2 = 30

loaves of bread.

Step-by-Step Solution

1

Determine the opportunity cost per unit of meat pie

1 meat pie = 2 loaves of bread (100 ÷ 50)

Establishing the rate of transformation between bread and meat pies based on resource allocation.

2

Calculate the increase in meat pie production

35 - 20 = 15 meat pies

Finding the marginal increase in output of the chosen item.

3

Calculate the total loaves of bread foregone

15 × 2 = 30 loaves of bread

Multiplying the additional meat pies produced by the unit opportunity cost in terms of bread.

Key Concept

Opportunity Cost in Production Trade-offs

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Topics

Opportunity Cost

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