1. Explain the connections between opportunity cost and the production possibilities frontier ?
2. What is the relationship between the bowed out shape of the production possibilities frontier and the increasing opportunity cost of a good as more of it is produced ?
3. When economists state that the opportunity cost of a product increases as more of it is produced, what do they mean?© BrainMass Inc. brainmass.com December 24, 2021, 10:31 pm ad1c9bdddf
SOLUTION This solution is FREE courtesy of BrainMass!
This a pretty straightforward question. Firstly, when reading my response, I suggest you bring up an image of a PPF. By description, a PPF is one quarter of a circle contained between an X-Y axis. There is a good on each axis, with the typical example being "Guns and Butter".
Society can produce either only guns, or only butter. It can also produce a mixture of the two. This is capturing the idea of limited resources. As we move along the PPF, we must sacrifice some guns to produce more butter. This is opportunity cost- the value of the foregone good.
As we move along the PPF, we begin to have to sacrifice higher incremental amounts of one good to produce more of the second. That is, if we are producing only Guns, and begin to move along the PPF, opportunity cost increases. Show this to yourself by observing the rate at which some of one good needs to be given up in order to produce more of the other. You will see that the bowed out shape captures this increasing opportunity cost.
This statement means that as we produce more of a good, resources typically become scarcer, and we have to give up more things in order to produce that good. Suppose we have five dairy farmers, and five gunsmiths. If society wants only guns, some dairy farmers are going to have to make guns. This is extremely inefficient, and society will have to give up a lot of butter for just a few more guns.© BrainMass Inc. brainmass.com December 24, 2021, 10:31 pm ad1c9bdddf>