The formula for opportunity cost:
[tex] A_{i} = \frac{B}{ A_{ii} } [/tex]
Ai = amount of the forgone product (B) it will cost to produce A
B = the amount of forgone product you can produce
Aii = the amount of the product you can produce
The opportunity cost of an item is a relative term defined as what you give up to obtain that item. Say if you are a farmer and by working 1 hr you can produce 1 oz potato . But if you intend to spend that same 1 hr to produce banana , you can produce 3 oz banana. From these, you can calculate the opportunity cost of potato in terms of banana and vice-versa.
The opportunity cost of 1 oz potato is 3 oz banana. Because you need to give up 3 oz banana to produce 1 oz potato. Similarly opportunity cost of 1 oz banana is 1/3 oz potato.
