anonymous
  • anonymous
what is the formula for opportunity cost
OCW Scholar - Principles of Microeconomics
  • Stacey Warren - Expert brainly.com
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katieb
  • katieb
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anonymous
  • anonymous
Opportunity cost of an item is a relative term defined as what you give up to obtain that item. Say if you are a farmer and by working 1 hr you can produce 1 oz potato . But if you intend to spend that same 1 hr to produce banana , you can produce 3 oz banana. From these you can calculate opportunity cost of potato in terms of banana and vice-versa. Opportunity cost of 1 oz potato is 3 oz banana. Because you need to give up 3 oz banana to produce 1 oz potato. Similarly opportunity cost of 1 oz banana is 1/3 oz potato. Hope this helps.
anonymous
  • anonymous
In Australia (and in year 11) we learn the formula to be something like: \[A_{i}=\frac{ B }{ A_{ii} }\] Where Ai is the amount of the forgone product (B) it will cost to produce A, B is the amount of forgone product you can produce and Aii is the amount of the product you can produce. Since that was a terrible explanation, an example of this is: If the Australian economy can produce 10 shoes or 50 moose, what is the opportunity cost of producing 1 moose? \[A_{i}=\frac{ B }{ A_{ii} }\] The opportunity cost of producing 1 moose = \[\frac{ 10 }{ 50 }\] The opportunity cost of producing 1 moose = 0.2 shoe(s). (Note, all the formula is saying is how many shoes per moose (shoes/moose) you can produce!)

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