Suppose Paulie can produce either 4 cups of ice cream or 8 cups of lemonade in one hour. What is Paulie's opportunity cost of producing one cup of ice cream?

• A. 4 cups of lemonade
• B. 0.5 cups of lemonade
• C. 2 cups of lemonade
• D. 8 cups of lemonade

Answer: (C)

Verified step by step guidance

1. Identify the total output Paulie can produce in one hour for each good: 4 cups of ice cream or 8 cups of lemonade.
2. Understand that the opportunity cost of producing one good is the amount of the other good that must be given up to produce one unit of the first good.
3. Calculate the opportunity cost of producing one cup of ice cream by dividing the amount of lemonade forgone by the number of ice cream cups produced: \(\frac{8 \text{ cups of lemonade}}{4 \text{ cups of ice cream}}\).
4. Simplify the fraction to find how many cups of lemonade Paulie gives up to produce one cup of ice cream.
5. Interpret the result as the opportunity cost of producing one cup of ice cream in terms of cups of lemonade.