A country has two main products: hats and grapes. The country decides to start making more and more hats and fewer and fewer grapes. Why does the opportunity cost of making hats increase as more and more hats are produced?
A. Grapes can be grown more efficiently than hats can be manufactured.
B. The best resources for producing grapes are least suited to making hats.
C. Increasing the country's production of hats maximizes its output of goods and services.
D. Producing more hats and fewer grapes shifts the production possibilities frontier to the left.
1 answer
The best answer is:
B. The best resources for producing grapes are least suited to making hats.
As the country produces more hats, it will need to allocate resources (such as labor and land) that are better suited for grape production to hat production. As a result, the opportunity cost of producing each additional hat increases because the country is giving up more and more grapes from resources that are increasingly less efficient for hat production.
