A nation’s residents can allocate their scarce resources either to producing consumer goods or to producing human capital—that is, providing themselves with training and education. The following table displays the production possibilities for this nation:

Production CombinationUnits of Consumer GoodsUnits of Human Capital
A0100
B1097
C2090
D3075
E4055
F5030
G600

(a) Suppose that the nation’s residents currently produce combination A. What is the opportunity cost of increasing the production of consumption goods by 10 units? By 60 units?

(b) Does the law of increasing additional costs hold true for this nation? Why or why not?

Short Answer

Expert verified

(a) When 10 units, the opportunity cost is 90 units. When 60 units, the opportunity cost is 40 units.

(b) Yes, it holds true.

Step by step solution

01

Step 1. Given Information

The data for consumer goods and human capital is as follows:

Production CombinationUnits of Consumer GoodsUnits of Human Capital
A0100
B1097
C2090
D3075
E4055
F5030
G600
02

Part (a) Opportunity Cost

Opportunity cost is the opportunity of the next best alternative forgone to satisfy human wants.

If the combination A is produced in the economy.

When the production of consumption goods is increased by 10 units, the opportunity cost is the 90 units forgone of the units of human capital.

When the production of consumption goods is increased by 60 units, the opportunity cost is the 40 units forgone of the units of human capital.

03

Part (b). The law of additional cost

The law of additional cost states that the increase in the production of one good would decrease the production of other goods.

The law holds true in this case as well as there is an increase in units of consumer goods the units of human capital decrease.

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Most popular questions from this chapter

If you receive a ticket to a concert at no charge, what, if anything, is your opportunity cost of attending the concert? How does your opportunity cost change if miserable weather on the night of the concert requires you to leave much earlier for the concert hall and greatly extends the time it takes to get home afterward?

You and a friend decide to spend \(100 each on concert tickets. Each of you alternatively could have spent the \)100 to purchase a textbook, a meal at a highly-rated local restaurant, or several Internet movie downloads. As you are on the way to the concert, your friend tells you that if she had not bought the concert ticket, she would have opted for a restaurant meal, and you reply that you otherwise would have downloaded movies. Identify the relevant opportunity costs for you and your friend for the concert tickets that you purchased. Explain briefly.

Suppose that in Fig 2-1, a student currently is allocating her study time in such a way that she is earning a C in mathematics and a C in economics. What is the opportunity cost, measured in terms of the resulting grade change, if this student wishes to reallocate her study time in order to raise her mathematics grade by one letter, from a C to a B?

The following table illustrates the points a student can earn on examinations in economics and biology if the student uses all available hours for study. Plot this student’s production possibilities curve. Does the PPC illustrate the law of increasing additional costs?

EconomicsBiology
10040
9060
8075
7085
6093
5098
40100

Suppose that in Figure 2-1, a student currently is allocating her study time in such a way that she is earning a C in mathematics and a C in economics. If the student desires to boost her economics grade to an A, how must she alter the number of hours per week that she studies economics? How must she alter the number of hours per week that she studies mathematics?

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