L2 - EC 1 UCLA Dr. Bresnock Lecture 2 Production...

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EC 1 UCLA Dr. Bresnock Lecture 2 Production Possibilities Curve (PPC) – shows the maximum combinations of two products that can be produced in a full employment, full production economy at a point in time . The following assumptions apply when constructing a PPC: 1. Full employment and productive (or technical) efficiency 2. Fixed resources 3. Fixed technology 4. 2 different goods – for simplicity Ex. Pizza or Robots Production Alternatives Type of Product A B C D E Pizza 0 1 2 3 4 Robots 10 9 7 4 0 The information given in the table will plot one PPC given the above assumptions. Graph 1 Production Possibilities Curve As we move down the PPC from Point A to Point E note the following: Loss G a i n From A to B From B to C From C to D From D to E
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EC 1 Lecture 2 Dr. Bresnock 2 Opportunity Cost – the value of the next best alternative. In this case, as we move from Point A to Point E the opportunity cost of increasing production of pizza is decreased production of robots. (If one moves from Point E to Point A, then the opportunity cost of
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This note was uploaded on 05/20/2010 for the course ECON 180-004-20 taught by Professor Bresnock during the Winter '09 term at UCLA.

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L2 - EC 1 UCLA Dr. Bresnock Lecture 2 Production...

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