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?
1
Expert's answer
2020-05-04T11:58:48-0400

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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