The following is a set of hypothetical production possibilities for a nation. Combination Automobiles (thousands) Beef (thousands of tons)
A 0 10
B 2 9
C 4 7
D 6 4
E 8 0

a. Plot the production possibilities data. What is the opportunity cost of the first 2,000 automobiles produced? Between which points is the opportunity cost per automobile highest? Between which points is the opportunity cost per thousand tons of beef highest?
b. Does this production possibilities curve reflect the law of increasing opportunity costs? Explain.
c. What assumptions could be changed to shift the production possibilities curve?

Concept of PPC & MOC, as per given Automobiles & Beef Case.

Explanation:

Production Possibility Curve is graph representing product combinations that an economy can produce with given resources & technology.

The PPC of automobiles & Beef is downward sloping, as their production is inversely related & marginal opportunity cost is increasing.

Marginal Opportunity Cost is the cost of a good sacrifised to gain an additional unit of other good. MOC per automobile is highest between point D & E, as 2 beefs per unit automobile are sacrifised (0 - 4)/ (8 - 6) = -4/2 = -2

Yes, the PPC reflects law of increasing MOC. As from A to B, least ie 1/2 beef is sacrifised to gain an automobile. Then higher 2 beef from B to C, rising & highest from D to E (ie 2 beefs per automobile).

PPC is based on 'given resources & technology' assumption. So, change in resources & technology level can change / shift the PPC

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