Answer to Question #42726 in Microeconomics for abdulla sabit

Question

What is opportunity cost?if a resource can only produce 50 units of bread and it doesn't have any other uses, what will be the opportunity cost of producing 50 units of bread?Explain.

What are the shift factors of PPF?Do you think PPF can be a straightl line?If yes,in what case?If not,why?

Answer 1

In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which
a choice needs to be made between several mutually exclusive alternatives given
limited resources.

If a resource can only produce 50 units of bread and it doesn't have any other uses, the opportunity cost of producing 50 units of bread will be zero, because there is no other alternatives.

The most common reason a PPF would shift is because of a change in technology, or because of economic growth. For example, if someone developed a faster computer, or a more efficient way of manufacturing cars, we might see a shift
right in the PPF. This means that everything else held constant (ceteris paribus) more goods can be produced after the technological change. The outward shift could also occur as a result of economic growth, which allows more production of both capital and consumer goods.

If the shape of the PPF curve is straight-line, the opportunity cost is constant as production of different goods is changing. But, opportunity cost usually will vary depending on the start and end point. So, PPF can be a straigt-line only in some cases and usually it is a curled up curve.