For a given relative price, if the relative price is greater than the opportunity cost ofthe good, then more of that good should be produced. But as production of thegood increases the opportunity cost of production will increase and eventually therelative price will equal the opportunity cost so it will not be value-maximizing4
has intentionally blurred sections.
Sign up to view the full version.
to raise production beyond this point.p1/p2Good 2Good 1p1/p2(b)The opportunity cost of cheese isaLCaLW:With an increase in the size of the Labourforce, there will be an expansion of the PPF but there be no change to theopportunity cost of producing cheese.WPPF0CPPF1The Home country specializes in the production of Cheese.With an increase inLabour at home fromLtoL0the amount of Cheese produced by Home increasestoL0aLC:There is no change to opportunity costs of Cheese production in eitherHome or Foreign so the horizontal portions of theRSfunction will remain thesame. But the location of the vertical portion of theRSfunction will shift to theright since withL0aLC>LaLCL0aLCL°aLW>LaLCL°aLW5