Suppose an economy can produce physical capital goods and consumption goods. Currently, the economy is employing all of its resources to produce a combination of physical capital goods and consumption goods.
a. Explain what is the economy’s opportunity cost of increasing its production of physical capital goods.
b. Explain what is the economy’s long run benefit from increasing its production of physical capital goods.
c. Explain how increasing the production of physical capital goods today would impact the economy’s production possibilities curve in the future.