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