The opportunity cost of shifting production choices The following graph shows th

Question

The opportunity cost of shifting production choices

The following graph shows the production possibilities frontier (PPF) of an economy that produces food and oil. The black points (plus symbols) represent three possible output levels in a given month. You can click on the points to see their exact coordinates.

Attempts 4. The opportunity cost of shifting production choices The following graph shows the production possibilities frontier (PPF) of an economy that produces food and oil. The black points (plus symbols) Score: /3 represent three possible output levels in a given month. You can click on the points to see their exact coordinates 40 35 PPF 30 25 20 15 10 80 160 240 320 400 480 560 640 OIL (Thousands of barrels) Suppose the economy initially produces 15 million pounds of food and 400,000 barrels of oil, which is represented by point A. The opportunity cost of producing an additional 5 million pounds of food (that is, moving production to point B) is barrels of oil Suppose, instead, that the economy currently produces 336,000 barrels of oil and 20 million pounds of food, which is represented by point B. Now the opportunity cost of producing an additional 5 million pounds of food (that is, moving to point C) is barrels of oil Comparing your answers in the two previous paragraphs, you can see that the opportunity cost of 5 million additional pounds of food at point B is the opportunity cost of 5 million additional pounds of food at point A. This reflects the

Explanation / Answer

64,000 barrels of oil. At point A, 15 million pounds of food and 400,000 barrels of oil were produced. At point B, 20 million pounds of food and 336,000 barrels of oil are produced. So the opportunity cost of 5 million pounds of foods is 400,000-336,000= 64,000 barrels of oil.

96,000 barrels of oil.

96,000 barrels of oil.

At point B, 20 million pounds of food and 336,000 barrels of oil were produced. At point C, 25 million pounds of food and 240,000 barrels of oil are produced. So the opportunity cost of 5 million pounds of foods is,336,000-240,000= 96,000 barrels of oil.

Greater than,

Law of increasing opportunity cost.

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