Consider an economy that produces only food and clothing. Its production possibilities boundary is shown below. a.

Question:

Consider an economy that produces only food and clothing. Its production possibilities boundary is shown below.

a. If the economy is at point A, how many tonnes of clothing and how many tonnes of food are being produced? At point B? At point C?
b. What do we know about the use of resources when the economy is at point A? At point B? At point C?
c. If the economy is at point B, what is the opportunity cost of producing one more tonne of food? What is the opportunity cost of producing one more tonne of clothing?
d. What do we know about the use of resources at point D? How would it be possible for the economy to produce at point D?

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...