Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas.
FIGURE 1-7
Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas, both measured in tonnes produced per year. Suppose this economy moves from point D to point F, where it is then producing bananas exclusively. Which of the following explanations best describes the opportunity cost involved in producing this extra 100 tonnes of bananas?
◦ The opportunity cost is very low in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas.
◦ The opportunity cost is very high in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton.
◦ The opportunity cost of producing the extra bananas is independent of the amount being produced.
◦ The opportunity cost is very low in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton.
◦ The opportunity cost is very high in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas.
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