Substitution and Opportunity cost

Substitution and Opportunity cost -...

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Substitution and Opportunity cost: The production possibility frontier hints at the  principle of substitution. Resources in a given scenario are always limited or scarce.  With the given quantity of resources, either 5 units of X or 20 units of Y can be  produced. But these resources can be alternatively used either to produce X or Y or any  combination of the two goods. Again with limited resources, every additional  unit  of X  requires sacrificing the production of some units of Y. Therefore units of X are  substituted for those of Y. The resource thus released from the production of Y units and  utilized in the production of X is called opportunity cost of producing X units. The  principle of opportunity cost is stated exactly in the same manner. It is the cost  equivalent to the amount of a  product  that would have been otherwise produced, or the 
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This note was uploaded on 12/28/2011 for the course MGMT 3303 taught by Professor Staff during the Fall '10 term at Texas State.

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