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Use the following information to answer questions 10 – 14. Suppose South Korea can produce 100 computer chips with 12 hours of labor input and 50 bed linens with 6 hours of labor input. The US can produce 100 computer chips with 10 hours of labor input and 50 bed linens with 4 hours of labor input. The opportunity cost of producing 100 computer chips for South Korea is:

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Answer:

100 bed linens

Explanation:

Opportunity costs of South Korea:

  • Computer chips = 100 chips / 12 hours of labor = 8.33 computer chips per hour of labor.
  • Bed linens = 50 chips / 6 hours of labor = 8.33 bed linens per hour of labor.

Since both products require the same amount of labor hours (8.33 labor hours per unit), then the opportunity cost of producing 100 computer chips is 100 bed linens.

Opportunity costs are the extra costs or benefits lost from choosing one activity or investment over another alternative.

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