BSEN 401 Lecture Notes - Opportunity Cost, Substitute Good

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The diagram above graphs our sample production possibilities frontier as a curve (ppc) with apples on the horizontal axis and wheat on the vertical axis. The graph of our actual example would be simply the 7 maximum output combinations possible if regions produced either all wheat or all apples. The production possibilities curve above relaxes this assumption by allowing the regions to produce any combination of wheat and apples. Note the following: points on the production possibilities curve are maximum output combinations. Characteristics of the production possibilities curve: the slope is negative. Production possiblities curve0591215171920apples (millions of bushels)0510152025wheat (millions of bushels)(assuming constant oc between options)recall that the slope of a line is rise/run or y/ x (dy/dx in calculus notation). Scarcity of resources on the frontier means that an increase in one output implies a decrease in another output: the negative (or absolute value) of the slope is the opportunity cost per unit of x.

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