Question

The economy produces computers and shoes. The production possibilities frontier as the flowing shape: . Production Possibilities Frontier Producon FOSSIMO 07 As shoe production increases: The opportunity cost of computers in terms of shoes will increase. The opportunity cost of computers in terms of shoes will stay the same. The opportunity cost of shoes in terms of computers will stay the sam The opportunity cost of shoes in terms of computers will increase.

Answer 1

The answer is D. The opportunity cost of shoes in terms of computers will increase.

Explanation:

Let's first talk about opportunity cost. Opportunity cost in production sector, in simple words is the value of another alternative that you could have produced in a given amount of time , the time which you utilised to produce another product instead.

In this case , if you see from the curve , let's say X axis represents the number of computers produced and let's say Y axis represents the number of shoes produced in a given amount of time.

Scenario 1: From curve If you decide to produce 0 shoes , the number of computers you can produce is maximum in given time .

Scenario 2:Now if you move farther on Y axis and decide to produce more shoes the number of computers produced decreases in the same amount of time.

Now comparing both scenarios ,by deciding to produce more shoes , you are giving up on production of some computers. The opportunity cost in this case is the value of difference in number of computers produced in each scenario.

If you move further up on Y axis and decide to produce more and more shoes , your production capability of computers decreases further given the same amount of time available and same resources available with you.

The opportunity cost incurred by you if you decide to utilise the opportunity of producing more shoes is in terms of number of computers you could have produced in the same amount of time . Thus the opportunity cost of shoes is in terms of computers and is increasing. This is evident from the PPF curve.

Thus the right answer is D