Find your question
and Get expert's answers*
Homework Help
*Click here to submit
Refer a Friend
Discount up to 15%*
Prepared References
Save up to 50%*
Homework Help >> Macroeconomics
  Principle of increasing opportunity cost  

Topic for Assignment: Production Possibility frontier

Q1. Suppose that a country can manufacture just two things: goods and services. Suppose that over a given period it could produce any of the subsequent combinations:

Units of goods    0    10    20    30    40    50    60    70    80    90    100
Units of service 80    79    77    74    70    65    58    48    35    19      0

(a) Draw country’s production possibility curve.

(b) Supposing that the country is currently manufacturing 40 units of goods and 70 units of services, what is the opportunity cost of manufacturing another 10 units of goods?

(c) Elucidate how the figures exemplify the principle of increasing opportunity cost.

(d) Now suppose that technical progress leads to a 10 per cent raise in the output of goods for any given amount of resources. Draw new production possibility curve.

How has the opportunity cost of producing extra units of services altered?

(a) See the continuous line in Diagram below.

(b) 5 units of services producing another 10 units of goods mean producing a total of 50 units of goods. Therefore, referring to the table,production of services has to be declined from 70 units to 65 units: a sacrifice of 5 units of services.

(c) Each additional 10 units of goods produced involves a raising sacrifice of services.  Thus increasing production of goods from 0 to 10, to 20, to 30, to 40, etc. involves a sacrifice of 1 (80–79), then 2 (70–77), then 3 (77–74), then 4 (74–70), etc. units of services.

Likewise, raising the production of services involves an increasing sacrifice of goods.  This can be seen by starting at the right-hand end of the table and moving to the left.  Smaller and smaller raises in services are obtained for each extra 10 units of goods sacrifice: in other words, for each extra unit of services obtained, more and more goods must be sacrificed.

(d) See the dashed line in Diagram below.  The opportunity cost of producing extra services has risen (by 10 per cent): in other words, each extra unit of services produced involves a sacrifice of 10 per cent more goods than previously.

1476_ppc curve.jpg

Ask an Expert for Solution

Ask an Expert for Answer Principle of increasing opportunity cost

Request for Solution Files

Expected delivery within 24 Hours

Course: Macroeconomics

Ref. No:- TGS01567

Like US:-
Assignment Help

Ask an Expert & Get Answer

  • Quality work delivery
  • 100% Plagiarism free
  • Time on delivery
  • Privacy of work
Order Now
More Macroeconomics Questions

Assume autonomous net taxes fall by $800 and the MPC is 7/8. Net exports, planned investment, taxes, and government purchases are autonomous and rem
if income falls below its potential and the income tax rate is reduced this will a raise the passive deficit but reduce the structural deficit b
explain what convex indifference curves means in terms of marginal utility what properties must a utility function have in order to obtain convex
explain about economys growth rateeconomys growth rate long-term economic growth or tendency growth is the rate of growth the economy can sustain
if you have 10000 to start a lawn-cutting business the interest rate is 6 percent your annual cost of raw materials are 4000 and the earnings you
What causes the lags in the effect of monetary and fiscal policy on aggregate demand? What are the implications of these lags for the debate over acti
Describe how the Herfindahl index is used as the guideline by government in deciding whether to permit horizontal mergers.
q explain about price inflationthe major reason for allowing for non-constant wages in the model is that we then can allow for persistent
what is the total cost of producing outputthe total cost of producing a specified quantity of output is the total of the fixed cost along with the
What is the policy of import substitution? Why might poor countries face obstacles when following this policy?