If production increases from 800 to 850 units (80% to 85%), and the average cost of the base 800 units rises from $5.90 to $5.93, the opportunity cost of the additional 50 units is which value?

If production increases from 800 to 850 units (80% to 85%), and the average cost of the base 800 units rises from $5.90 to $5.93, the opportunity cost of the additional 50 units is which value?

• A. 5.90
• B. 6.41
• C. 5.93
• D. 5.78

Answer: (B)

Opportunity cost here is the marginal cost of the extra 50 units, i.e., how much extra cost per unit is required to raise output from 800 to 850. Compute the totals using the given averages: - Total cost for 800 units at the original average: 800 × 5.90 = 4,720. - If the base 800 units now carry an average of 5.93, the total cost for 850 units would be 850 × 5.93 = 5,040.50. The additional 50 units thus add 5,040.50 − 4,720 = 320.50 in total cost. Per extra unit, that’s 320.50 / 50 = 6.41. So the opportunity cost of the additional 50 units is 6.41 per unit (total incremental cost is 320.50).

Opportunity cost here is the marginal cost of the extra 50 units, i.e., how much extra cost per unit is required to raise output from 800 to 850.

Compute the totals using the given averages:

• Total cost for 800 units at the original average: 800 × 5.90 = 4,720.

• If the base 800 units now carry an average of 5.93, the total cost for 850 units would be 850 × 5.93 = 5,040.50.

The additional 50 units thus add 5,040.50 − 4,720 = 320.50 in total cost. Per extra unit, that’s 320.50 / 50 = 6.41.

So the opportunity cost of the additional 50 units is 6.41 per unit (total incremental cost is 320.50).