Answer to Question #113769 in Microeconomics for arsh

Question #113769
Suppose you own an outdoor recreation company and you want to purchase all-terrain vehicles (ATVs) for your summer business and snowmobiles for your winter business. Your budget for new vehicles this year is $240,000. ATVs cost $8000 each and snowmobiles cost $12,000 each.

a. Draw a budget line for your purchase of new vehicles.

b. What is the opportunity cost of one ATV?

c. What is the opportunity cost of one snowmobile?
Expert's answer

a. Budget line is represented on the graph:

b. Opportunity cost of one ATV is "8 000\/12 000 = 2\/3" snowmobiles, as money we spend to buy 1 ATV can be alternatively used to buy 2/3 of snowmobile.

c. Analogously, opportunity cost of one snowmobile is "12 000\/ 8 000=1.5" ATW

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