The Opportunity Cost Per Thousand Tons of Beef Is the Highest Between Points
OPPORTUNITY Cost
Practice Problemsane. Consider a simple economy producing ii goods: cars and milk. The post-obit table gives several points on this economy's product possibility frontier.
Cars (1000's/yr)
Milk (chiliad's of gallons/ twelvemonth)
0
60
1
fifty
2
30
3
0
a. Graph this economic system'southward production possibility frontier.
b. Why is the production possibility frontier downward sloping? Be sure to explain economical intuition behind that fact.
The negative slope of the PPF illustrates the fact that larger quantities of cars stand for to a smaller amount of milk, and vice versa. This happens because all the economy's resources are already in employ, and therefore obtaining more cars would ever crave sacrificing some milk. In economic terms, the negative slope is due to the presence of opportunity cost.
c. Why is the production possibility borderland concave? Be sure to explicate economic intuition behind that fact.
The slope of a particular segment of the PPF shows how much practiced on the vertical axis (milk) has to be sacrificed in order to obtain an additional car (the good on the horizontal axis). The steeper the slope the larger the aforementioned sacrifice has to exist. This happens as we motion from left to right and therefore towards larger quantities of cars, which represents the principle of increasing costs discussed in class - equally we produce more and more cars, each boosted car costs us more in terms of milk we have to forgo.
d. Suppose the economy is currently producing 2000 cars and 30,000 gallons of milk. What is the opportunity cost of producing additional 20,000 gallons of milk?
We can see from either the table or the graph that if 30,000+20,000=50,000 gallons of milk were produced, the economy could at the same time produce no more than yard cars. This represents a subtract by 1000 cars relative to the electric current production. (2000 - thousand = 1000). The opportunity cost of additional 20,000 gallons of milk is i,000 cars.
due east. The synthetic product of Bovine Growth Hormone (BGH) allows dairy farmers to get twice every bit much milk from each cow. In terms of this production possibility frontier, this means that this economic system tin can now produce twice every bit much milk at each level of car output. With the economy currently producing 2000 cars, Jerry claims that the development of BGH allows the economy to produce more milk and more cars.
Do you agree? Explain advisedly, using an appropriate diagram to illustrate your answer.Yes, Jerry is right. As a issue of the BGH introduction, each point on the PPF will exist located twice equally high equally information technology was originally. See graph. Information technology is like shooting fish in a barrel to come across that, beingness at point A (corresponding to 2000 cars and 30,000 gallons of milk), the economic system can move upwardly to indicate B (more milk), to the correct to betoken C (more than cars), or have more milk and more than cars at the same time (point D).
2. A team consisting of iii people is working on a large project, which involves manual entry of data in a reckoner, with subsequent processing of these data and making a poster presentation.
Naturally, each member of the team has unlike abilities in performing either task. Adam tin make ane affiche or 400 data entries in a day. Hard-working Becci tin make two posters or 1200 information entries in a day. Artistic Cliff can make 3 posters or 900 entries in a day.
a. Originally, the entire squad (each of them having their ain personal computer) starts with entering data. How many entries volition exist made in a day?400 + 1200 + 900 = 2500
b. As the time comes to get-go making posters, you make up one's mind to assign one fellow member of the squad to this task. Whom would y'all choose? Explain why.
Since along with making posters you lot will still need to enter data, you may want to look for the scenario in which each poster produced costs you the to the lowest degree in terms of data entries forgone. If yous ask Adam to brand posters, the opportunity toll of each poster is 400 entries. In the case of Becci, each poster costs 1200:2 = 600 entries. If Cliff switches to making posters, and then each poster costs your team 900:three = 300 entries. The last option is the nearly bonny, and then Cliff should be the get-go who is assigned to practise the posters.
c. As you make this decision, what is the opportunity price of each poster fabricated?
The respond is given above: Each poster costs 300 data entries.
d. As there is less and less data remaining to be entered, another person can shift to making posters also. Which of the remaining 2 members of the squad will yous choose this time? Explain your choice. Every bit a result, what is the opportunity cost of each boosted poster y'all volition become?
Our calculations in part b bespeak that Adam should be next, since between him and Becci he has the lowest opportunity cost of each poster - 400 data entries.
e. Draw a sketch of your team's production possibility frontier, placing the number of numerical entries on the vertical axis and the number of posters on the horizontal axis.
f. What does the order in which y'all reassign your squad members from information entry to making posters imply nigh the shape of your PPF? Which important economic principle does this fact illustrate?The PPF came out concave. This happened because, every bit successive team members are assigned to making posters, the opportunity cost of each additional poster increases. This is an illustration of the principle of increasing costs discussed in form.
Source: https://www.washburn.edu/sobu/dnizovtsev/200P01_OCans.html
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