# Production possibilities and opportunity costs

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##### Intros

###### Lessons

**Production Possibilities and Opportunity Costs Overview:**__Production Possibilities Frontier__- All possible choices of production
- Limits to the production of two goods
- Key Ideas
- Production efficiency and product inefficient

__Opportunity Cost__- Something that must be given up to acquire something else
- Opportunity Cost as a Ratio
- Examples

##### Examples

###### Lessons

**Understanding Production Possibilities Frontier**

Suppose a business can produce pops and bananas. The business' production possibilities are as follows

Pops (per day)

Bananas (per day)

18

0

15

1

11

2

6

3

0

4

- Draw the business' PPF
- If the business can produce 11 pops per day, then how much bananas does it need to produce per day to achieve production efficiency?
- What production of pops and bananas would be considered product inefficient?
- If the business is currently producing 3 bananas per day and 6 pops per day, then what is the trade off to attain another banana?

- Suppose a business can produce cars and tires. The business' production possibilities are as follows

Cars (per day)

Tires (per day)

0

34

2

27

4

19

6

10

8

0

**Calculating Opportunity Cost**

Recall that the business' production possibilities are as follows:

Cars (per day)

Tires (per day)

0

34

2

27

4

19

6

10

8

0

- Suppose the business decides to increase the production of cars from 4 to 6 each day. What is the opportunity cost of an additional car?
- Suppose the business decides to increase the production of tires from 10 to 19 each day. What is the opportunity cost of an additional tire?
- What the relationship between questions a and b?
- Is there an increasing opportunity cost of cars? Explain