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Difficulty: MediumOpportunity Cost

A commercial farming enterprise in Oyo State uses its fixed land and labor resources to produce Cassava and Yam. The table below presents its monthly production possibility schedule:

CombinationCassava (bags)Yam (bags)
P1200
Q9045
R5080
S0100

What is the opportunity cost of increasing Yam production from 4545 bags to 8080 bags, expressed in bags of Cassava foregone?

Answer: 40 bags of Cassava

Answer

The opportunity cost of increasing Yam production from 45 bags to 80 bags is 40 bags of Cassava.
Increasing Yam production from 4545 bags to 8080 bags requires moving from Combination Q to Combination R. At Combination Q, Cassava production is 9090 bags, whereas at Combination R, Cassava production decreases to 5050 bags. The opportunity cost is the foregone Cassava production, calculated as 90−50=4090 - 50 = 40 bags of Cassava.

Step-by-Step Solution

1
Locate the initial production combination
At Combination Q, the firm produces 45 bags of Yam and 90 bags of Cassava.
Opportunity cost measures what must be sacrificed when shifting resources from one alternative to another.
2
Locate the target production combination
At Combination R, the firm produces 80 bags of Yam and 50 bags of Cassava.
Increasing Yam production from 45 to 80 bags requires moving along the schedule from Q to R.
3
Calculate the quantity of the sacrificed commodity (Cassava)
Opportunity Cost = 90 - 50 = 40 bags of Cassava.
The opportunity cost is the explicit quantity of Cassava sacrificed to gain the additional 35 bags of Yam.

Key Concept

Opportunity Cost from Production Schedule
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Opportunity Cost

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