Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.

Which points on the graph are efficient?
Which points on the graph are unattainable at the moment? How could we get there?
What is the opportunity cost of moving from point R to point U?

Expert Solution

Since there is no specific information given in terms of production, I have considered some numbers to illustrate.

Which points on the graph are efficient?

-- All the points on the PPF are efficient including the corner points.

Which points on the graph are unattainable at the moment? How could we get there?

-- All the points above the PPFs are unattainable. To get there, technological enhancement or increase in resources is required.

What is the opportunity cost of moving from point R to point U?

-- In the diagram I have drawn, at point R, 50 units of swaeters and 90 units of apples. And at point U, 75 units of sweaters and 60 units of apples can be produced. To move from R to U, the country can produce (75 - 50 = 25) units of sweaters by sacrificing (90 - 60 = 30) units of apples. Hence, to produce 1 unit of sweater, 30/25 = 1.2 units of apple needs to be sacrificed. Therefore, the opportunity cost of producing a unit of sweater = 1.2 units of apple, while moving from point R to U. You may consider the numbers from your PPF to calculate the opportunity cost by using the same approach.

Rahul Sunny answered 2 years ago

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