Question

Marie has a weekly budget of \(24, which she likes to spend on magazines and pies. If price of magazine is \)4 each & price of pie is 12 each.

What is Marie’s opportunity cost of purchasing a

pie?

Short answer

Marie's opportunity cost of purchasing a pie is 3 magazines.

Step-by-step solution

Concept - Opportunity Cost in Budget Constraint 

Opportunity Cost is the cost of next best alternative foregone while choosing an alternative.

In budget constraint, constant money income & prices imply that both goods quantities' are inversely related - units of a good can be gained by sacrificing certain units of other good only.

Numerical Solution 

In Marie's case also, opportunity cost of a pie is magazines (sacrificed) & vice versa.

This is calculated by slope formula of : ratio of price of pie to price of magazine

So, the opportunity cost = 12 / 4 = 3