What it is the opportunity cost of producing an additional bowling ball measured in terms of forgone bicycles?

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Opportunity cost figures in when you have two choices, and you can only pick one. It can be defined as the forgone benefit that you would have received from the option you did not choose. To find opportunity cost, you subtract the return on the option you chose from the return on the best option that you did not choose.

Since there are not specific numbers provided for the problem, let's create some to give an example of how to calculate the opportunity cost in such situations. Option A is making that additional bowling ball. Option B is making more bicycles. You choose to make the bowling ball instead of the bicycle. Let's say that a bowling ball retails for $20 and a bicycle for $30, yet you choose to make the bowling ball because you have a greater chance of selling it. There is more demand for bowling balls in your region.

To calculate a basic opportunity cost, you subtract the revenue from your chosen option (A, the bowling ball) from the revenue of your rejected option (B, the bicycle). You discover that you have potentially lost $10 by your choice (although perhaps not, since the bicycle might not have sold anyway).

You may also be asked to factor in the production costs for each item. Let's say a bowling ball costs $10 to make, while a bicycle costs $15 to produce. You thereby get a $10 profit on a bowling ball and a $15 profit on a bicycle. You still have an opportunity cost, but it is now less, only $5 as opposed to $10. Your choice to produce bowling balls that are more likely to sell is looking better.

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