Food Tr 10 Clothes 10 12 Based on the above PPF, is point \"A\" a production pos
ID: 2441110 • Letter: F
Question
Food Tr 10 Clothes 10 12 Based on the above PPF, is point "A" a production possibility. If it is a production possibility is it efficient? Explain why or why not. (3pts) Moving from point A to B on PPF 1, what is the opportunity cost of clothes in terms of food? (2pts) Do you expect the opportunity cost of clothes in terms of food to increase or decrease as you move from point B to C, as compared to your answer from part a? Fully explain why you feel this way and how it relates to the overall shape of PPF 1. (5pts) a. b. c.Explanation / Answer
(a) Based on the above PPF, point 'A' is a production possibility. A production possibility point is a point that shows all the maximum combination of two goods that can be produced in the economy with the given resouces that are fully and efficiently employed.
Production efficient point is the one wherein an economy cannot porduce more of any one good without letting go of any other good. In the above example: if economy decides to produce one more unit of clothes, it will have to forego one unit of food and vice-versa. Since, point 'A' shows the maximum level of output that can be produced and producing any further of any good can lead to sacrificing in the other good, thus, point 'A' is efficient.
(b) Opportunity cost is the cost that an individual or company has to incur in order to choose some other good.
To calculate the opportunity cost: divide What we sacrifice with What we gain.
Thus, opportunity cost = 2 units of clothes / 3 units of food.
Thus, opportunity cost = 2/3 or 0.67
(c) The opportunity cost of clothes in terms of food will decrease as we ove from point B to point C, as compared to moving from point A to point B. At point C, To increase one unit of cloth, we'll have to sacrifice more units of food as compared to that at point B. Thus, the opportunity cost will also decrease comparitively.
The law of increasing opportunity cost states: as the production of one good rises, the opportunity cost of producing that good increases. Thus, The shape of a PPF is commonly drawn as concave to the origin to represent increasing opportunity cost with increased output of a good. Thus, MRT increases in absolute size as one moves from the top left of the PPF to the bottom right of the PPF.