how to draw a diagram of production possibility when the table is
bundle of out put capital goods consumer goods
a 0 78
b 20 68
c 38 56
d 53 34
e 67 22
f 88 0
when the consumer goods are on vertical
b) what will be the opportunity cost of producing only capital goods
c) what is the opportunity cost of producing only consumer goods
d) what is the opportunity cost of increasing the out put of consumer goods from 22 to 56 units
To draw a diagram of a production possibility curve using the given table, follow these steps:
Step 1: Plot the points on a graph.
- Create a graph with the horizontal axis representing the quantity of capital goods and the vertical axis representing the quantity of consumer goods.
- Plot the points from the table using the given values for each bundle of output. For example, plot point A at (0,78), point B at (20,68), and so on, until you have plotted all the points.
Step 2: Connect the points with a smooth curve.
- Once all the points are plotted, connect them with a smooth curve. This curve represents the production possibility frontier (PPF).
- The PPF illustrates the maximum output combinations of capital goods and consumer goods that can be produced with the given resources and technology.
Now, let's answer the specific questions based on the diagram:
b) The opportunity cost of producing only capital goods:
- To determine this, find the point on the production possibility curve where only capital goods are produced. Let's say the point is X.
- The opportunity cost of producing only capital goods can be calculated as the difference between the consumer goods quantity at point X and the consumer goods quantity at point B (which represents the next best alternative).
- Therefore, the opportunity cost of producing only capital goods is 68 - 56 = 12 units of consumer goods.
c) The opportunity cost of producing only consumer goods:
- To determine this, find the point on the production possibility curve where only consumer goods are produced. Let's say the point is Y.
- The opportunity cost of producing only consumer goods can be calculated as the difference between the capital goods quantity at point Y and the capital goods quantity at point B.
- Therefore, the opportunity cost of producing only consumer goods is 20 - 38 = -18 units of capital goods (indicating a decrease in capital goods production).
d) The opportunity cost of increasing the output of consumer goods from 22 to 56 units:
- To determine this, find the difference between the capital goods quantity at point D (53) and the capital goods quantity at point C (38).
- Therefore, the opportunity cost of increasing the output of consumer goods from 22 to 56 units is 53 - 38 = 15 units of capital goods.