Explain the meaning of opportunity cost with the help of production possibility schedule.

Explanation

Opportunity cost of any commodity is the amount of other good which has been given up in order to produce that commodity. Alternatively opportunity cost of a given activity is the value of the next best activity.

Initially at combination B, in order to produce one unit of X, the economy has to sacrifice one unit of Y. So, at combination B, opportunity cost is 1 unit. At combination C, for producing additional unit of commodity X, the economy has to sacrifice 2 units of commodity Y. So, at combination C, opportunity cost is 2 units. Similarly, at combination D, for producing additional unit of commodity X, the economy has to sacrifice 3 units of commodity Y. So, at combination C, opportunity cost is 3 units and so on.