Explain the concepts of Opportunity Cost and Marginal Rate of Transformation using a production possibility schedule based on the assumption that no resource in equally efficientn prodduction of all goods.

Explain the concepts of Opportunity Cost and Marginal Rate of Transfor

1.	Explain the concepts of Opportunity Cost and Marginal Rate of Transformation using a production possibility schedule based on the assumption that no resource in equally efficientn prodduction of all goods.
Answer» Solution :Suppose the only two goods produced are X and Y Opportunity COST refers to the QUANTITY of one good foregone to obtain more quantity of the other good. For example when we move from combination A to B the economy foregoes 2 UNITS of Y to obtain one more units of X, So, opportunity cost of obtaining 1X is 2Y. MRT means quantity of one good sacrified to produce an additional UNIT of the other good. For example, when we move from combination B to C the MRT is4Y : 1X. MRT increases as to produce more of good X, we need to transfer less and less efficient resources from good Y.