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PPF Drawing and Opportunity Cost Analysis

This exercise involves drawing a production possibility frontier (PPF) curve for a country that can produce two items, goods and services. It then asks the student to calculate opportunity costs at different production points along the curve and explain how a technical change would shift the PPF outward. Specifically, it has the student: (1) draw the initial PPF curve in Excel based on data provided (2) calculate and compare opportunity costs at different points before and after increasing goods production, and (3) draw a new PPF curve that reflects a 10% increase in goods output from a technical change. The goal is to illustrate concepts of opportunity cost and how technical progress can influence a country's production possibilities.

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Hunter Gale
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729 views2 pages

PPF Drawing and Opportunity Cost Analysis

This exercise involves drawing a production possibility frontier (PPF) curve for a country that can produce two items, goods and services. It then asks the student to calculate opportunity costs at different production points along the curve and explain how a technical change would shift the PPF outward. Specifically, it has the student: (1) draw the initial PPF curve in Excel based on data provided (2) calculate and compare opportunity costs at different points before and after increasing goods production, and (3) draw a new PPF curve that reflects a 10% increase in goods output from a technical change. The goal is to illustrate concepts of opportunity cost and how technical progress can influence a country's production possibilities.

Uploaded by

Hunter Gale
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Production Possibility Frontier and Opportunity Cost

Production Possibility Frontier: drawing, calculating opportunity costs, and

allowing for technical change.


PPF and opportunity Cost
[Link]
[Link]
This exercise goes starts with drawing a PPF, and continues onto discussing opportunity costs,
and allowing for a change in the PPF due to a technical change.
Question: Imagine that a country can produce just two things: goods and services. Assume that
over a given period it could produce any of the following combinations:

Units of Goods
0
10
20
30
40
50
60
70
80
90
95

Units of Services
80
79
77
74
70
65
58
48
35
19
0

Using Excel:
a) Draw the countrys production possibility curve?

b) Assuming that the country is currently producing 40 units of goods and 70 units of services,
what is the opportunity cost of producing another 10 units of goods?

c) Now calculate the opportunity cost of each good after increasing the amount of goods from 80
to 90. Has the opportunity cost of each good increased or decreased.

d) Now read the theory of increasing opportunity cost from your text book and explain why
opportunity cost has de/increased in our example above.



e) Now we relax the ceteris paribus rule and assume that the technical progress leads to a 10%
increase in the output of goods for any given amount of resources. Draw the new production
possibility curve.

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