Question

Homework (Ch 02) Beth is a skilled toy maker who is able to produce both cars and puzzles. She has 8 hours a day to produce toys. The following table output resulting from various possible combinations of her time. shows the daily Hours Producing Produced Choice (Cars) (Puzzles) (Cars) (Puzzles) 0. 16 19 20 On the following graph, use the blue points (circle symbol) to plot Beth's initial production possibilities frontier (PPF) Initial PPF New PPF 15 10 CARS

Answer 1

Opportunity cost is the value of next best alternative foregone.

Opportunity cost of producing additional car is the units of puzzles sacrificed.

1) To produce second car, producer has to decrease production of puzzles from 19 to 16. So, opportunity cost = 19 - 16 = 3 puzzles

2) To produce third car, producer has to decrease production of puzzles from 16 to 11. So, opportunity cost = 16 - 11 = 5 puzzles

3) Opportunity cost increases

4) lower than