### Opportunity Cost and Production Possibility Frontier (PPF)#### Understanding the GraphThe provided graph illustrates a Production Possibility Frontier (PPF), which represents the trade-off between the production of two goods: Books and Rolls of Paper Towels. The curve demonstrates the maximum possible output combinations of the two goods that can be produced using available resources and technology efficiently.#### Components of the Graph1. **Axes**: - The horizontal axis (x-axis) represents the number of Books produced, ranging from 0 to 70. - The vertical axis (y-axis) represents the number of Rolls of Paper Towels produced, ranging from 0 to 620.2. **Data Points (A to H)**: - Each point on the curve (labelled A through H) represents a different combination of the two goods that can be produced when resources are fully and efficiently utilized. - **Point A**: 0 Books and 620 Rolls of Paper Towels. - **Point B**: 10 Books and 610 Rolls of Paper Towels. - **Point C**: 20 Books and 590 Rolls of Paper Towels. - **Point D**: 30 Books and 540 Rolls of Paper Towels. - **Point E**: 40 Books and 485 Rolls of Paper Towels. - **Point F**: 50 Books and 380 Rolls of Paper Towels. - **Point G**: 60 Books and 220 Rolls of Paper Towels. - **Point H**: 70 Books and 0 Rolls of Paper Towels.#### Interpretation of the Graph- **Efficient Production**: - Points on the curve (A to H) indicate efficient production levels, where any increase in the production of one good results in a decrease in the production of the other due to limited resources. - **Opportunity Cost**: - Moving from one point to another on the curve demonstrates the concept of opportunity cost, which is the cost of forgoing the production of one good to produce more of the other. For example, moving from point A to B shows the opportunity cost of producing 10 more books, which is 10 rolls of paper towels.- **Shifts in the PPF**: - An outward shift of the PPF would suggest an improvement in technology or an increase in resources, allowing for more production of both goods. An **Understanding Production Possibility Frontier (PPF) Concepts**When examining the concepts of gains, opportunity costs, and the law of increasing opportunity costs within the framework of the Production Possibility Frontier (PPF), several important questions arise:**e. Analyzing Gains Down the PPF***Continue moving point by point down the PPF. What is the pattern of gains as one chooses to move down this PPF from point A to B to C to D and so forth?*To understand the gains, one analyzes how the production choices change as one moves from one point to another along the PPF. The pattern of gains usually involves assessing how reallocating resources influences the production quantities of two different goods.**f. Opportunity Costs Across the PPF***What is the pattern of opportunity costs as one chooses to move down this PPF from point A to B to C to D and so forth?*Opportunity cost represents the value of the next best alternative that must be forgone in order to produce more of a particular good. As we move down the PPF from point A to B and so forth, it’s crucial to observe how the opportunity costs change. Typically, this will highlight the trade-offs between producing one good over the other.**g. Law of Increasing Opportunity Costs at Pinnacle Paper Products***Does the law of increasing opportunity costs hold for book production at Pinnacle Paper Products? How do you know?*The law of increasing opportunity costs states that as production of a good increases, the opportunity cost of producing an additional unit of the good also increases. By examining whether Pinnacle Paper Products faces higher costs for producing additional books, one can determine if this economic principle applies. Indications of this law holding true would be observed if, for each additional unit of book production, more and more of another resource is required to be sacrificed.---By exploring these questions, students and learners can gain a deeper understanding of the dynamics at play in resource allocation and production efficiency within an economy. The Production Possibility Frontier provides a foundational model for illustrating these concepts in economic theory.

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Description: ### Opportunity Cost and Production Possibility Frontier (PPF)#### Understanding the GraphThe provided graph illustrates a Production Possibility Frontier (PPF), which represents the trade-off between the production of two goods: Books and Rolls of

e. The gains are constant that is 10 books with varying opportunity costs. The opportunity cost…

Business

Economics

e. Continue moving point by point down the PPF. What is the pattern of gains as one chooses to move down this PPF from point A to B to C to D and so forth? f. What is the pattern of opportunity costs as one chooses to move down this PPF from point A to B to C to D and so forth? g. Does the law of increasing opportunity costs hold for book production at Pinnacle Paper Products? How do you know?

e. Continue moving point by point down the PPF. What is the pattern of gains as one chooses to move down this PPF from point A to B to C to D and so forth? f. What is the pattern of opportunity costs as one chooses to move down this PPF from point A to B to C to D and so forth? g. Does the law of increasing opportunity costs hold for book production at Pinnacle Paper Products? How do you know?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter2: Economic Tools And Economic Systems

Section: Chapter Questions

Problem 3.5P

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What does a production possibilities frontier illustrate?
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8. Shifts in production possibilities Suppose the United States produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for alfalfa, an agricultural good, and industrial copiers, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of a breakout of avian flu that sickens millions of workers. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. 540 450 PPF 380 270 180 90 PPF 100 200 300 400 500 600 ALFALFA (Millions of bushels) INDUSTRIAL COPIERS (Thousands)
Question 1 What does the Production Possibilities Frontier of a firm show and how does it relate to scarcity and budgeting? Draw the Production Possibilities Frontier for a firm producing two goods, and explain what the various positions in the diagram mean.
4. Shifts in production possibilities Suppose the United States produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for wheat, an agricultural good, and cars, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of a time-saving innovation in the manufacturing of cars. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. 480 PPF 400 320 240 160 80 PPF 0. 90 180 270 360 450 540 WHEAT (Millions of bushels) CARS (Thousands)
5Look at the following production possibilities curve illustrating the possibilities in Sluggerville for producing bats and/or peanuts with the existing level of resources and technology. (a) Show a point U that would indicate unemployed resources in Sluggerville. (b) Draw a new curve B that illustrates the results of improved technology in the production of bats, but no change in the production efficiency of peanuts. (c) Show a point G that would indicate a point that is currently unattainable in the production of peanuts and bats in Sluggerville. Peanuts (metric tons) (s000'00L) sieg
CS 8 Economics
6. Efficiency in the production possibilities model Suppose Italy produces only two goods: potatoes and cars. The following graph shows Italy's current production possibilities frontier, along with six output combinations represented by black points (plus symbols) labeled A to F. A B с D E CARS (In millions) F 100 8 60 9 8 0 PPF <+ U 0 Complete the following table by indicating whether each point represents output combinations that are inefficient, efficient, feasible, or infeasible. Check all that apply. Point Inefficient Efficient Feasible U U L 0 xc U E 40 60 POTATOES (In millions) xo 00 000 100 Infeasible 000 ? 000 C
6. Study Questions and Problems #6 The following table shows a set of hypothetical production possibilities for a nation producing automobiles and beef. Combination Automobiles Beef (Thousands) (Thousands of tons) A 0 10 B 2 9 C 4 7 D 6 4 E 8 0 On the following graph, use the blue points (circle symbol) to plot the production possibilities curve for the nation using the data in the preceding table. Line segments will automatically connect the points. PPFFG012345678910109876543210Beef (Thousands of tons)Automobiles (Thousands) The opportunity cost of the first 2,000 automobiles produced is tons of beef. Between which points is the opportunity cost per thousand automobiles highest? A and B B and C C and D D and E The opportunity cost per thousand tons of beef is the highest between points Using your answers in the preceding parts, you can see that the opportunity cost of 1,000…
4. Shifts in production possibilities Suppose the United Kingdom produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for barley, an agricultural good, and cars, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of an immigration law that results in fewer workers entering the country. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. ? CARS (Thousands) 300 250 200 150 100 50 0 0 80 PPF 160 240 320 BARLEY (Millions of bushels) 400 480 6 PPF
4. Shifts in production possibilities Suppose Spain produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for alfalfa, an agricultural good, and locomotives, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of a breakout of avian flu that sickens millions of workers. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. (? 420 PPF 350 280 210 140 70 PPF 40 80 120 160 200 240 ALFALFA (Millions of bushels) LOCOMOTIVES (Thousands)
Problem 1: Production Possibilities Frontier Consider an economy that produces bicycles and autos. The production possibilities schedule shown below denotes the points on the production possibilities frontier. Points Amount Bicycles Amount Autos A 10 B 8 D E 5 8 12 14 15 a) Draw the production possibilities frontier in a clearly labelled graph. You can assume the points on the frontier are connected by straight lines. Please put bicycles on the x-axis and autos on the y-axis. b) Is point E more efficient in production than point C? Explain. c) Based on this production possibility frontier, can the economy currently produce 8 bicycles and 10 autos? If not, explain what would need to happen to allow the economy to produce 8 bicycles and 10 autos. d) True/False/Uncertain (and explain): Point B more efficient in allocation than point A. e) Does this production frontier have increasing opportunity costs? Explain, and also explain why it is common for production frontiers to have increasing…