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D, E, F, G= feasible and efficient
I = feasible but
not
efficient
H = not feasible.
•
Definition. Marginal Opportunity Cost (OC)
: of producing one additional unit of
(S)
is the amount of T that must be sacrificed (
∆
T) to use resources to produce more
of (S) and less of (T) (recall resources are fixed).
•
Slope of PPF
: M. Opportunity cost of
(S) =
∆
T/
∆
S =
sacrifice
/
∆
S or
M. Opp. cost of (T) =
∆
S/
∆
T (amount of S that must be sacrificed)
PPF and Opportunity Cost of S
Shapes of the PPF
: signifies the
direction of change in opportunity cost
.
1.
If PPF is
concave
, the sacrificed (T) increases as (S) increases by the extra units. This is
called
increasing
opportunity cost
.
What causes OC to be increasing?
2.
If PPF is a
straight line
: the sacrificed T is constant. This is called
constant
opportunity
cost
.
3.
If PPF is
convex
, sacrificed T decreases. This is
decreasing
Opportunity cost.
Convex

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