Question

The countries of Utopia and Dystopia can each produce two goods: wine and cars. If Utopia produces only wine, it can produce 80 barrels per year; if it produces only cars, it can produce 40 cars per year. If Dystopia produces only wine, it can produce 60 barrels per year; if it produces only cars, it can produce 90 cars per year. Indicate the opportunity cost of producing cars and wine in Utopia and Dystopia by reproducing the table below on your answer sheet and filling it in. (Note: the opportunity cost of producing a barrel of wine will be in units of cars, and the opportunity cost of producing cars will be in units of barrels of wine.)

Answer 1

The first table shows the production possibilities and the calculated opportunity costs and the second table shows the formula view of the calculations.

Utopia:

To produce 80 barrels of wine, it has to sacrifice 40 cars. Hence, opportunity cost of producing 1 barrel of wine = 40/80 =0.5 cars.

Similarly, to produce 40 cars, it has to sacrifice 80 barrels of wine. Hence, opportunity cost of producing 1 car = 80/40 =2 barrels of wine

Dystopia:

To produce 60 barrels of wine, it has to sacrifice 90 cars. Hence, opportunity cost of producing 1 barrel of wine = 90/60 =1.5 cars.

Similarly, to produce 90 cars, it has to sacrifice 60 barrels of wine. Hence, opportunity cost of producing 1 car = 60/90 =0.67 barrels of wine