Refer to the graph below Does this countrys production possi

Refer to the graph below. Does this country\'s production possibilities curve exhibit increasing opportunity costs? Explain. What is the opportunity cost of producing one unit of butter? What is the opportunity cost of producing one unit of guns? Which point is currently unattainable? Refer to the graph below.

Solution

NO the country\'s PPF doesnt depict increasing opportunity costs.Only if the PPF is concave it depicts increasing opportunity costs.Slope of PPF represents the opportunity costs.Here the slope is constant hence the opportunity costs are constant.

Opportunity cost of producing 1 butter is represented by the slope which is equal to 1 here.

Opportunity cost of producing 1 unit of gun is also = 100/100 = 1 unit of butter.

Point D is currently unattainable since it lies above the frontier.Only when the country increases its volume of resources or incurs technical advancement does it reach point D through shift in the PPF outwards.