Opportunity Cost in Production Decision Making

What is the opportunity cost to Picnicland of increasing the production of hotdogs from 450 to 900?

a. 150 burgers
b. 450 burgers
c. 300 burgers
d. 225 burgers

Final answer:

The opportunity cost to Picnicland of increasing the production of hotdogs from 450 to 900 is 450 burgers.

The concept of opportunity cost is crucial in decision-making processes, especially in production scenarios like the one faced by Picnicland. By choosing to increase the production of hotdogs from 450 to 900, Picnicland incurs an opportunity cost in terms of the burgers it could have produced instead.

Opportunity cost is the value of the next best alternative foregone when a decision is made. In this case, the opportunity cost is calculated by determining the quantity of burgers that Picnicland could have produced if they did not choose to increase the hotdog production.

To calculate the opportunity cost, we need to find the difference between the initial production level and the final production level. In this scenario, the difference is 900 (final production) - 450 (initial production) = 450 burgers.

Therefore, the opportunity cost to Picnicland of increasing the production of hotdogs from 450 to 900 is 450 burgers. This means that Picnicland is forgoing the production of 450 burgers by choosing to allocate resources to hotdog production instead.

Understanding opportunity cost is essential for businesses to make informed decisions and optimize resource allocation. By weighing the benefits and drawbacks of different choices, organizations like Picnicland can make strategic decisions that positively impact their bottom line.