Reference no: EM133129865
Opportunity cost and production possibilities
Susan is a skilled toy maker who is able to produce both trucks and balls. She has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of her time.
|
Choice
|
Hours Producing
|
Produced
|
|
(Trucks)
|
(Balls)
|
(Trucks)
|
(Balls)
|
|
A
|
8
|
0
|
4
|
0
|
|
B
|
6
|
2
|
3
|
11
|
|
C
|
4
|
4
|
2
|
16
|
|
D
|
2
|
6
|
1
|
19
|
|
E
|
0
|
8
|
0
|
20
|
On the following graph, use the blue points (circle symbol) to plot Susan's initial production possibilities frontier (PPF).
Initial PPFNew PPF012345678302520151050BALLSTRUCKS4, 0
Suppose Susan is currently using combination D, producing one truck per day. Her opportunity cost of producing a second truck per day is per day.
Now, suppose Susan is currently using combination C, producing two trucks per day. Her opportunity cost of producing a third truck per day is per day.
From the previous analysis, you can determine that as Susan increases her production of trucks, her opportunity cost of producing one more truck.
Suppose Susan buys a new tool that enables her to produce twice as many trucks per hour as before, but it doesn't affect her ability to produce balls. Use the green points (triangle symbol) to plot her new PPF on the previous graph.
Because she can now make more trucks per hour, Susan's opportunity cost of producing balls is_______ it was previously.