Production Possibilities Model Graded Assignment | Back to Assignment Due Sunday

Question

Production Possibilities Model Graded Assignment | Back to Assignment Due Sunday 06.24.18 at 1145 PM Attempts: Keep the Highest: 19 4. The opportunity cost of shifting production choices The following graph shows the production possibilities frontier (P9F) of an economy that produces drinking water and coal. Points (X symbols) )represent three possible output levels in a given month. You can place your mouse over the points to see their exact coordinates. DRINKING WATER IMilions of galions per mant 20404080100120140140 COAL IMitions of tons per month Suppose the economy initially produces 54 million gallons of drinking water and 40 million tons of coal, which is represented by point A. The opportunity cost of producing an additional 20 million tons of coal (that is, moving production to point B) is water. gallons of drinking Suppose instead that the economy currently produces 60 million tons of coal and 48 miltion galions of drinking water, which is represented by point B. Now the opportunity cost of producing an addrional 20 million tons of coal (that is, moving to point C) is drinking water elons o Comparing your answers in the two previous paragraphs, you can see tha the opportuity cost 20 million additional tons of coal at point B is the opportunity cost of 20 million additional tons of coal at point A. This reflects the

Explanation / Answer

From point A to B, The opportunity cost of (60-40)=20 million tons of coal is (58-24)=4 million of gallons of drinking water.

From point B to C, the opportunity cost of (80-60)=20 million of coal is (50-40)=10 million of gallons of drinking water.

The opportunity cost of 20 million additional tons of coal at point B is more than the opportunity cost of 20 million additional tons of coal at point A, This reflects the increasing opportunity cost or the PPF is convex to the origin.

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