PRODUCTION POSSIBILTY FRONTIERS AND REAL-WORLD TRADE-OFFS
Production possibility a curve showing the maximum attainable combinations of two
products that may be produced with available resources.
All combinations either on the frontier or inside the frontier attainable resources
Combinations on the frontier are efficient because all available resources are being
fully utilised and the fewest possible resources are being used to produce a given
amount of output.
Combinations inside the frontier are – inefficient because maximum output is not
being obtained from the available resources
INCREASING MARGINAL OPPORTUNITY COSTS
As the economy moves down the production possibility frontier it experiences increasing
marginal opportunity costs because increasing OBJECT B a production by given quantity
requires larger and larger decreases OBJECT A.
Why does marginal opportunity cost occur?
Marginal opportunity costs occur because some workers, machines and other resources are
better suited to one use than another.
What is the idea of marginal opportunity costs and why is it beneficial?
The idea of marginal opportunity costs is an important economic concept. It demonstrates
that the more resources devoted to an activity, the smaller the payoff to devoting additional
resources to that activity.
Example- the more funds a firm has devoted to research and development during a
given year, the smaller the amount of useful knowledge it receives from each
additional dollar-the greater the opportunity costs of using the funds in that way.
At any given time the total resources available to any economy are fixed. If Australia
produces more computers