Question

Homework (Ch 02) < Back to Assignment Attempts: Average: 5 5. Opportunity cost and production possibilities Amy is a skilled toy maker who is able to produce both boats and kites. She has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of her time Hours Producing Produced Choice (Boats) (Kites) (Boats) (Kites) 6 16 19 20

Answer 1

The production possibility curve shows the all combinations of two goods that can be produced with the given level of resources and the technology.

Opportunity costs= What you lose/ What you gain.

At the point D producing one boat per day, the opportunity cost for producing the second unit unit of boat is $3/1=3$.

At the point C producing 2 boats per day, the opportunity cost for producing the third boat per day is $5/1=5$.

As the production of boat increases the opportunity cost for producing the one more boat increases.

The new technology will reduce the cost of the production, so the PPF will shift to the rightwards. So the opportunity cost is less than the previous.