Question

The table below lists points on a production possibility boundary (PPB) for an economy.
Good X 0 1 2 3 4 5 6 7 8 9 10
Good Y 110 108 104 98 90 80 68 54 38 20 0

(a) Plot the points in a diagram with x on the horizontal axis and y on the vertical axis. Sketch the PPB by connecting these points.
(b) Calculatetheopportunitycostofthe1st,2nd,3rd,...10thunitofxiftheeconomyisoperatingonthe PPF. Briefly explain why the opportunity cost of x is increasing as more of it is produced.
(c) Suppose the economy is currently producing 5 units of x and 50 units of y. What is the opportunity cost of x given this production point? Explain.

Answer 1

Answer on Question #47114, Economics, Microeconomics

1.

2. The proposition that opportunity cost, the value of foregone production, increases as the quantity of a good produced increases. This fundamental economic principles can be seen in the production possibilities schedule and is illustrated graphically through the slope of the production possibilities curve. It generates a distinctive convex shape, flat at the top and steep at the bottom.

3. The opportunity cost of $\mathbf{x}$ given this production point is 50 units of $\mathbf{y}$ .

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