PPF is a line on the production possibility curve that show the maximum possible output an economy can produce. 4. Opportunity Cost Opportunity cost is defined as the value of next best alternative ,so opportunity cost measures the sacrifice we make when we are forced to make choices due to scarcity.
What is opportunity cost on a production possibilities curve?
An opportunity cost will usually arise whenever an economic agent chooses between alternative ways of allocating scarce resources. The opportunity cost of such a decision is the value of the next best alternative use of scarce resources .
What is opportunity explain it with production possibility curve?
Opportunity cost
Points along the curve describe the tradeoff between the goods . ... In the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). If the shape of the PPF curve is a straight-line, the opportunity cost is constant as production of different goods is changing.
What is production possibility curve explain with diagram?
The production possibility curve represents graphically alternative production possibilities open to an economy . The productive resources of the community can be used for the production of various alternative goods. But since they are scarce, a choice has to be made between the alternative goods that can be produced.
What is opportunity cost explain it?
What Is Opportunity Cost? Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another . ... Understanding the potential missed opportunities foregone by choosing one investment over another allows for better decision-making.
What is opportunity cost formula?
The Formula for Opportunity Cost is: Opportunity Cost = Total Revenue – Economic Profit . Opportunity Cost = What One Sacrifice / What One Gain .
What is opportunity cost in everyday life?
In daily life, opportunity costs are the benefits or pleasures foregone by choosing one alternative over another . For instance, if you decide to spend money eating out for dinner in a restaurant, then you forgo the opportunity to eat a home-cooked meal.
What is opportunity cost give example?
The opportunity cost is time spent studying and that money to spend on something else . A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment). A commuter takes the train to work instead of driving.
What is the relationship between PPC and opportunity cost?
when the opportunity cost of a good remains constant as output of the good increases , which is represented as a PPC curve that is a straight line; for example, if Colin always gives up producing 2 fidget spinners every time he produces a Pokemon card, he has constant opportunity costs.
What are the types of opportunity cost?
- Explicit Cost: This is an opportunity cost that involves a money payment and usually a market transaction. ...
- Implicit Cost: This is an opportunity cost that DOES NOT involve a money payment or market transaction.
What are the features of production possibility curve?
- Slopes downwards to the right: PPC slopes downwards from left to right. ...
- Concave to the point of origin: It is because to produce each additional unit of commodity A, more and more units of commodity B will have to be sacrificed.
Why is PPC concave explain?
Production Possibility Curve (PPC) is concave to the origin because of the increasing opportunity cost . As we move down along the PPC, to produce each additional unit of one good, more and more units of other good need to be sacrificed. ... And this causes the concave shape of PPC.
What are the 4 assumptions of the PPC?
The four key assumptions underlying production possibilities analysis are: (1) resources are used to produce one or both of only two goods, (2) the quantities of the resources do not change, (3) technology and production techniques do not change, and (4) resources are used in a technically efficient way.
What is opportunity cost explain with example?
When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource . If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.
What is opportunity cost simple words?
Opportunity cost is the profit lost when one alternative is selected over another . The concept is useful simply as a reminder to examine all reasonable alternatives before making a decision. For example, you have $1,000,000 and choose to invest it in a product line that will generate a return of 5%.
What is the importance of opportunity cost?
The concept of Opportunity Cost helps us to choose the best possible option among all the available options . It helps us to use every possible resource tactfully, efficiently and hence, maximize economic profits.
