Test Prep For AP® Courses
A company decides to spend $500,000 on office renovations. What is one opportunity cost of this decision, from the perspective of the company?
- Worker happiness from the better work environment
- Fewer dividends to the company’s shareholders
- Forgone investment in new capital equipment for the company
- Rental fees for the office building
- Fees paid to the construction company that has been hired to complete the renovations
A country can produce 10,000 more automobiles but doing so will require it to produce 5,000 fewer computers. The opportunity cost of producing one automobile in this example is therefore ____________.
- 10 automobiles
- 5 computers
- 2 computers
- ½ of a computer
- ½ of an automobile
Consider the following production information for Country A.
|Point||Quantity of Automobiles||Quantity of Computers|
- Using the information above, draw a Production Possibilities Frontier for Country A.
- Given the information in this table, what is the opportunity cost of one computer in terms of automobiles?
- Suppose another country, Country B, has an opportunity cost of one computer equal to three automobiles. Should Country A or B specialize in production of computers? Explain.
- Does the PPF you drew in part (a) exhibit increasing opportunity cost in the production of either computers or automobiles? Explain.