Steve and Craig have been shipwrecked on a deserted island in the South Pacific. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same time Craig can reel in two fish or harvest two baskets of pineapples. Assume Craig and Steve both operate on straight-line production possibilities curves. What is Steve's opportunity cost of producing a basket of pineapples

His opportunity cost of a basket of pineapples is 2 fish

Explanation:

Opportunity cost is defined as the forgone alternative that a person must make when he makes a decision to do something.

So in economics apart from the cost of a product being purchased there is also consideration of the alternative that was ignored.

In the given scenario there are two activities they undertake. That is gathering pineapples or fishing.

Steve can either catch four fish or gather two baskets of pineapples in one hour.

This can be simplified as:

2 baskets of pineapples ÷ 4 fish = 1 basket of pineapples per 2 fish

So if Steve gathers 1 basket of pineapples he is letting go of opportunity to get 2 fishes

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