Economics: Opportunity cost Help Please

[Ghost3k]

Hello. I'm having trouble getting these few questions on opportunity cost. Can anyone please help me out and explain how you arrived at your answer. Help would be much appreciated.

Here are the questions:

1. Suppose Shen is currently using combination D, producing 1 boat. What is the opportunity cost of producing a second boat?
2. Now, suppose Shen is currently using combination C, production 2 boats. What is the opportunity cost of producing a third boat?
3. As Shen increases his production of boats, his opportunity cost of producing one more boat increases or decreases.

I thought for the first one it was 21. For the third it thought it was decreases. Not sure though.

 

[Ghost3k]

An opportunity cost is what you give up by making an alternative choice among mutually exclusive choices. So choice D means Shen gets 1 boat and 21 puzzles to sell. Choice C means 2 boats and 19 puzzles. The benefit of going from D to C is 1 more boat, but the opportunity cost of going from D to C is what? What did Shen give up to get that extra boat? Is it 2 puzzles?

This is one of those concepts that are so simple you refuse to believe that they are that simple and make them complex.

I read it over and i think i get it.

 

[Ghost3k]

If Shen shifts from D to C he goes from 1 boat to 2 boats, a gain of 1 boat, but he also goes from 21 puzzles to 19 puzzles, a loss of 2 puzzles.

So the extra boat "cost" 2 puzzles.

You are making what is easy into something hard. If Shen is choosing between C and D, C gives him 1 more boat but 2 fewer puzzles than D does. So the cost of going from D to C is 2 puzzles. The cost of going from C to D is one boat. Opportunity cost is what you give up by choosing one alternative rather than another.

ok I see what you are saying as in logical sense. But my question is whether your answer relating to particularly any of the questions. Like is it what you would do for question #2? Because I don't see how it makes sense for question #1. I'm probably not making to much sense since it's late over here.

 

[Ghost3k]

I am clearly not doing a good job of explaining. I'll give it one last shot.

If Shen chooses Alternative C over Alternative D, what Shen gives up is 2 puzzles because production of puzzles goes from 21 to 19. But Shen goes from 1 boat to 2, for a gain of 1 boat. So 2 fewer puzzles is the opportunity cost of 1 extra boat in that case. Or we can say that the average opportunity cost per boat IN THAT CASE is 2 puzzles per boat.

Now you can turn this around. If Sen chooses Alternative D over Alternative C, what Shen gives up is 1 boat because production of boats goes from 2 to 1. But Shen goes from 19 puzzles to 21, for a gain of 2 puzzles. So 1 fewer boat is the opportunity cost of two puzzles in that case. Or we can say IN THAT CASE the average opportunity cost per ticket is half a boat.

If Sen chooses Alternative A over Alternative D, what Shen gives up is 21 puzzles because production goes from 21 to 0. But Shen goes from 1 boat to 4, for a gain of 3 boats. So 21 fewer puzzles is the opportunity cost of 3 extra boats in that case. Or we can say that the average opportunity cost IN THAT CASE is 7 puzzles per boat.

Ok, so I just woke up and I must say I understand everything you are saying now. I think I must've been too tired. Thank you for not giving up on me JeffM.