Production Possibilities Frontier

Production Possibilities Frontier - Opportunity cost The...

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Production Possibilities Frontier (PPF) PPF shows The maximum combination, of the output of two goods, using existing resources,  to full potential, at given state of technology (5 parts) Ex. Of PPF M16’s(Gun)  and Graeters (Ice cream) Graph in notebook Implications More rifles mean less ice cream Cost exists Cost=sacrifice Implication ; nothing is free; everything has a cost Opportunity cost of  each  1000 rifles? Behavior of opp cost? Rises. . as we make more ice cream we are pulling resources away from rifles  Resources are not equally well suited to produce all goods Diminishing marginal returns Wach worker that we take away from rifle production to produce more ice cream  gives us successfully less more ice cream produciton
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Unformatted text preview: Opportunity cost The next best use of a resource that is given up to produce something Ex. cost of E201 attendance today Nap Income Other studying Late lunch Workout Why not count tuition? Suck cost Sacrifice that occurred a past decision The past cant be changed so current decisions dont depend on that sacrifice Opportunity cost in incremental or marginal cost If asked the opportunity cost in the next semester then the tuition becomes relevant Technology Refers to how resources are combined in production Think: recipes of which resources are combined. Ex: like baking a cake, all the ingredients to make the whole cake, butter, bowls, etc....
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This note was uploaded on 11/09/2011 for the course ECON-E 201 taught by Professor Olson during the Spring '10 term at Indiana.

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Production Possibilities Frontier - Opportunity cost The...

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