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Chapter 2

Microeconomics - Chapter 2.docx

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Rita Cossa

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Microeconomics – Chapter 2 (Production Possibilities Frontier) Production Possibilities Frontier (PPF) – Graph showing all possible combinations of output - Shows the best an economy can do using resources efficiently and production technology Point A-D: Factors of Production and available production technology being used efficiently Point H: Unattainable because not enough resources and/or technology is not good enough Point K: Available but the company can produce more of either with available resources/technology - All of the point on the PPF line are efficient (Productive Efficiency) - However, the wrong combination of products could be being made (Socially inefficient) Efficiency = Productive Efficiency + Social Efficiency - PPF graphs illustrate opportunity cost (To make one thing, you have to give up the other) Calculating Opportunity Cost: - The slope is the opportunity cost (Opportunity cost of X-axis) - Opportunity cost of Y-axis = 1/(Opportunity cost of X-axis) - Ex. Opportunity cost of
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