Opportunity Cost Basic

Question: See the table below and explain why does the
opportunity cost of producing guns keep on rising with
the rise in the number of the produced unit of Guns?

Possibilities Units of Units of Guns

Butter
A 15 0
B 14 1
C 12 2
D 9 3
E 5 4
F 0 5

Answer: The Table shown above is a Hypothetical Production

Schedule for a Two- Product Economy. Here, it is assumed that
the producer is operating his production at his full
capacity and is using all the resources that are available
to him.
At possibility A, the producer’s entire resources are devoted to
producing Butter. If he is to produce at full capacity but
wants to make some Guns, he can do it by shifting some
resources away from Butter.
As he is the owner of both the factories, he will do the
shifting in such a way that would help him to produce
some Guns while not causing any great hamper to his
Butter- production.
So, at first, he shifts some inefficient workers along
with some machines that are not in use in the Butter
factory. As a result, for the production of 1 unit gun, the
opportunity cost is only 1 unit of Butter. But as he produces 2,
3, 4 and 5 units of Guns, the opportunity cost also rises
gradually from 2 to 3 to 4 and to 5 units. According to our
general thinking, the opportunity cost should have been
a constant number of units every time. But this idea is
wrong.
As the producer decides to produce some more Guns, he
shifts the left inefficient resources from the Butter-
factory and gradually starts shifting the efficient
resources to the Gun –factory. So, the opportunity cost
keeps on rising with the rise in the number of the
produced unit of Guns.