Question

Give an example to illustrate each of the following: (a) constant opportunity costs and (b) increasing opportunity costs. With at least 100 words

Answer 1

A. For constant opportunity cost

Assume you are endeavoring to choose how to go through the five hours between 7:00 p.m. also, midnight. When you contemplate financial matters, you can peruse 20 pages of your course reading every hour. Paradoxically, you can peruse 50 pages of your history reading material every hour. You could likewise invest some portion of the energy perusing magazines, sitting in front of the TV, chatting on the phone, or something different. A creation potential outcomes boondocks can be utilized to delineate your choices for going through these five hours. Give the vertical pivot of a diagram a chance to be utilized to gauge the quantity of pages of your financial aspects course book you read. Give the even pivot a chance to gauge the quantity of pages of your history course reading you read.

Embed DIAGRAM HERE

Figure 3. A generation conceivable outcomes outskirts (PPF) for an understudy with five hours of study time. Straight-line PPFs outline consistent open door costs.

On the off chance that you go through every one of the five hours perusing your financial matters book, the most extreme number of pages you could peruse is 100. (Five hours increased by 20 pages for each hour measures up to 100 pages.) This is outlined by point An in the diagram. For this situation, you can't peruse any pages of your history book (since you are going through each of the five hours perusing financial matters).

In the event that you go through four hours perusing your financial matters course reading and one hour perusing your history book, you could peruse a limit of 80 pages of financial aspects and a limit of 50 pages of history. This is delineated by point B in the diagram. Note that by decreasing the measure of time spent perusing your financial matters content, you lose the chance to peruse 20 pages of financial aspects, however gain the chance to peruse 50 pages of history. The opportunity cost of perusing 50 pages of history is the loss of the capacity to peruse those extra 20 pages of financial matters.

In the event that you go through three hours perusing your financial matters book and two hours perusing your history content, you could peruse a limit of 60 pages of financial aspects and a limit of 100 pages of history. This is outlined by point C in the diagram. Note that by decreasing the measure of time spent perusing your financial aspects book by one more hour, you lose the capacity to peruse 20 pages of financial aspects, yet gain the chance to peruse 50 additional pages of history. The open door cost of perusing 50 extra pages of history is the loss of the capacity to peruse 20 extra pages of financial aspects.

On the off chance that you go through two hours perusing your financial aspects course reading and three hours perusing your history book, you could peruse a limit of 40 pages of financial aspects and a limit of 150 pages of history. This is delineated by point D in the chart. Again take note of that by decreasing the measure of time spent perusing your financial matters book by one more hour, you the lose the capacity to peruse 20 pages of financial aspects, however gain the chance to peruse 50 additional pages of history. The open door cost of perusing 50 extra pages of history is the loss of the capacity to peruse 20 pages of financial aspects.

In the event that you just go through one hour perusing your financial aspects content and four hours perusing your history book, you could peruse a limit of 20 pages of financial matters and a limit of 200 pages of history. This is delineated by point E in the chart. By diminishing the measure of time spent perusing your financial aspects book by one more hour, you lose the capacity to peruse 20 pages of financial aspects, yet gain the chance to peruse 50 additional pages of history. The open door cost of perusing 50 extra pages of history is the loss of the capacity to peruse 20 pages of financial aspects.

In the event that you go through every one of the five hours perusing your history book, the most extreme number of pages you could peruse is 250. This is represented by point F in the chart. By diminishing the measure of time spent perusing your financial matters book by one more hour, you lose the capacity to peruse 20 pages of financial aspects, however gain the chance to peruse 50 additional pages of history. The open door cost of perusing 50 extra pages of history is the loss of the capacity to peruse 20 pages of financial aspects.

At the point when these focuses are plotted on a chart, they can be associated with shape a straight line that meets the vertical hub at 100 pages of financial matters and converges the level hub at 250 pages of history. Any point on this line between the captures speaks to a conceivable mix of pages of financial aspects and history which could be perused if each of the five hours are given to perusing financial matters and history. By investing more energy perusing history and less time perusing financial aspects, you can expand the quantity of pages of history you could peruse however should forfeit a portion of the pages of financial aspects you could peruse. On the other hand, by investing more energy perusing financial aspects and less time perusing history, you can build the quantity of pages of financial aspects you could peruse however should forfeit a portion of the pages of history you could peruse. This outlines the idea of chance expense. On the off chance that you go through a hour perusing 20 pages of financial matters, you forego the chance to spend that equivalent hour perusing 50 pages of history. The open door cost of perusing 20 pages of financial matters is the 50 pages of history you forego perusing. So also, on the off chance that you go through a hour perusing 50 pages of history, you forego the chance to go through that hour perusing 20 pages of financial aspects. The open door cost of perusing 50 pages of history is the 20 pages of financial aspects you forego perusing.

In this basic model, there are steady open door costs. Steady open door costs happen when the amount of one item that must be predestined to acquire a unit of another item is the equivalent, paying little respect to what amount has just been created. Despite where you are on the PPF, the open door costs are the equivalent. For each extra page of financial matters read, you forego the chance to peruse more than two pages of history. (In the event that you can go through one hour perusing either 20 pages of financial aspects or 50 pages of history, at that point you could burn through 1/20 of a hour understanding one page of financial aspects (20/20 = 1) or over two pages of history (50/20 = 2 ½). Likewise, for each extra page of history read, you forego the chance to peruse 2/5 of a page of financial aspects. (On the off chance that you can go through one hour perusing either 50 pages of history or 20 pages of financial matters, at that point you could burn through 1/50 of a hour understanding one page of history (50/50 = 1) or two-fifths of a page of financial matters (20/50 = 2/5). Graphically, steady open door costs are represented by a straight-line creation conceivable outcomes boondocks (PPF). The slant of the PPF, which estimates the open door cost, is consistent up and down the PPF. Along these lines, any PPF that is a straight-line portion has consistent open door costs.

B. Increasing opportunity cost

The law of expanding opportunity cost expresses that when an organization keeps raising creation its chance cost increments. In particular, on the off chance that it raises generation of one item, the open door cost of making the following unit rises. This happens in light of the fact that the maker reallocates assets to make that item. In any case, utilizing those assets for the first great was progressively beneficial for the organization.

Each business attempts to utilize its assets to most extreme limit, i.e., productively. None of us has boundless assets. Along these lines, it is important that we settle on the correct decisions with respect to what we do have.

Our chance costs impact our choices, financial specialists state.

Each time we submit a greater amount of our organization's assets in a specific course, we will keep running into the law of expanding opportunity costs.