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Lecture

BSEN 401 Lecture Notes - Opportunity Cost, Forego


Department
Business and Environment
Course Code
BSEN 401
Professor
William Huddleston

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PRODUCTION POSSIBILITIES FRONTIERS (FUNCTIONS, CURVES)
Definition: A Production Possibilities Frontier (Function, Curve) is the maximum output
combinations producible from a given set of resource inputs and a given set of technology.
The Production Possibilities Curve demonstrates Scarcity, Choice, and Opportunity Cost.
It also demonstrates Technological Efficiency, i.e., maximum output from given resources
and technology.
e.g. We begin our discussion with an example.
Suppose that Canada is divided into 7 regions with identical resources of a million hectares
of land, a million hours of labour, and a million units of capital but different climate and quality
of land. Suppose further that each region can produce either wheat or apples but not a
combination of the two. The table gives the output of each region per year in millions of
bushels.
B.C.
Nova
Scotia
Ontario
Quebec
Alberta
Manitoba
Saskatchewan
Wheat
1
2
3
3
4
4
6
Apples
5
4
3
3
2
2
1
The following table gives the total output combinations of the country as well as the
opportunity cost of those options.
Land in Wheat
Apple Output
Opportunity Cost
per Option
Opportunity Cost
per Unit
All
0
Less B.C.
5
1W
1/5
Less BC & Nova
Scotia
9
2W
2/4 = 1/2
Less BC, NS, &
Ontario
12
3W
3/3 = 1
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