The following graph shows the production possibilities front

The following graph shows the production possibilities frontier (PPF) of an economy that produces clothing and oil. The black points (plus symbols) represent three possible output levels in a given month. You can click on the points to see their exact coordinates 2 2 PPF 20 10 80 160 240 320 400 480 560 640 OIL (Millions of barrels)

Solution

Point A:

The opportunity cost of producing an additional 5 mn pieces of clothing is = 400 - 336 = 64 mn barrels of oil.

Point B:

The opportunity cost of producing an additional 5 mn pieces of clothing is = 336 - 240 = 96 mn barrels of oil.

The opportunity cost of 5 mn additional pieces of clothing at point B is more than the opportunity cost of 5 mn additional pieces of clothing at point A. This reflects the law of increasing opportunity costs.