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Unformatted text preview: Production Possibilities Frontiers and Trade-Offs 07/02/2008 16:52:00 Production Possibilities Frontier: A curve showing the maximum attainable combinations of two products that may be produced with available resources. Analyzes trade-offs and opportunity costs. OPPORTUNITY COST: o The highest valued alternative that must be given up to engage in an activity (the value of the next best alternative). ATTAINABLE/ EFFICIENT: o A combination on the line of production possibilities. UNNATAINABLE: o A combination beyond the production possibilities line. INNEFICIENT: o A combination below the production possibilities line. Increasing Marginal Opportunity Costs As the economy moves down the production possibilities frontier, it experiences increasing marginal opportunity costs because increasing one type of production by a given quantity requires a decrease in another type of production. The more resources already devoted to any activity, the smaller the payoff to devoting additional resources to that activity....
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This note was uploaded on 03/18/2008 for the course SPAN 100 taught by Professor Woolsey,timothy during the Spring '08 term at Pennsylvania State University, University Park.
- Spring '08