Lecture 3

# Lecture 3 - D E F G= feasible and efficient I = feasible...

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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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## This note was uploaded on 04/03/2012 for the course ECON 300 taught by Professor Gang during the Fall '06 term at Rutgers.

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Lecture 3 - D E F G= feasible and efficient I = feasible...

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