Question

L ANALYTICAL QUESTION Suppose you have only 20 hours per week to study or leisure. The following table indicates the
the tradeoff between leisure time (not studying) and the grade point achieved as a result of studying.

Combination	Leisure time (hours/week)	Grade-point average (GPA)
A	20	0
B	18	1.0
C	14.5	2.0
D	10	3.0
E	0	4.0

A. From the table above, draw the PPC that shows the possible combinations and label

I. attainable,
II. unattainable,
III. attainable but not efficient combinations

B. Using the information above, what is the opportunity cost of raising your grade-point
average from 2.0 to 3.0?

C. What is the opportunity cost of raising your grade-point average from 3.0 to 4.0?
D. Why does the opportunity cost of improving your grade-point average increase?

Answer 1

(A)

• Any point which lies on the PPC curve is attainable and efficient. For example, Point A, B, C , D and E are attainable.
• Any point which lies outside the PPC curve is unattainable. For example, point N.
• Any point which lies inside the PPC curve is attainable but no efficient combination. For example, Point M.

(B) In order to increase the GPA from 2 to 3, there is a need to decrease the leisure time from 14.5 hours to 10 hours.

Hence, the opportunity cost of raising GPA score from 2 to 3 is 4.5 hours of leisure time (i.e., 14.5 - 10 = 4.5)

(C) In order to increase the GPA from 3 to 4, there is a need to decrease the leisure time from 10 hours to 0 hours.

Hence, the opportunity cost of raising GPA score from 3 to 4 is 10 hours of leisure time (i.e., 10 -0 = 10)

(D) Opportunity cost of improving your GPA increases because you are not completely adaptable to use your time in studying instead wasting time.