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Constant Opportunity Cost

Definition

Constant opportunity cost refers to a situation where the opportunity cost remains unchanged as more units of a particular good are produced. This implies that resources are equally efficient in producing different goods.

Analogy

Think about baking cookies using two types of ingredients - flour and sugar. If both ingredients have constant opportunity costs, it means that no matter how many cookies you bake, each additional cookie will require an equal amount of flour and sugar.

Related terms

Increasing Opportunity Cost: In contrast to constant opportunity cost, increasing opportunity cost occurs when the production of additional units of a good requires more and more resources, resulting in a higher opportunity cost.

Law of Diminishing Marginal Returns: The law of diminishing marginal returns states that as more units of a variable input (e.g., labor) are added to fixed inputs (e.g., capital), the marginal output will eventually decrease. It is related to constant opportunity cost because it highlights the idea that resources have limits and cannot be infinitely expanded.

Trade-off: A trade-off refers to the decision-making process where choosing one option means giving up another. In the context of constant opportunity cost, it emphasizes that producing more of one good requires sacrificing the production of another.