Question

Use the following table for the problem below.
1 Ping-Pong Balls 1 Hat
Larry 1/5 of a hat 5 ping-pong balls
Curly 1/2 of a hat 2 ping-pong balls
According to the opportunity cost table above, which trading proposal will Curly gain and Larry lose?
A. Larry offers Curly 1 ping-pong ball for 1/4 of a hat.
B. Curly offers Larry 1 hat for 3 ping-pong balls.
C. Curly offers Larry 1 hat for 4 ping-pong balls.
D. Larry offers Curly 1 ping-pong ball for 1/3 hat.

Answer 1

Answer:

No option is correct:

• A. Larry offers Curly 1 ping-pong ball for 1/4 of a hat.
• B. Curly offers Larry 1 hat for 3 ping-pong balls.
• C. Curly offers Larry 1 hat for 4 ping-pong balls.
• D. Larry offers Curly 1 ping-pong ball for 1/3 hat.

In order for Curly to win and Larry lose, Curly must offer 1 hat in exchange for 6 or more ping-pong balls.

• Option A: Larry wins 1 ping-pong ball.
• Option B: Larry wins 2 ping-pong balls.
• Option C: Larry wins 3 ping-pong balls.
• Option D: Larry wins 0.13 of a hat.  

Explanation:

Opportunity costs are the benefits lost or extra costs associated to choosing one investment or activity over another alternative.

In this case, Larry can either have 1 hat or 5 ping-pong balls. Curly can have 1 hat or 2 ping-pong balls.