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Using a bowed outward production possibilities curve between ice cream and hammers,...

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yaga49 | Valedictorian

Posted April 14, 2013 at 12:29 AM via web

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Using a bowed outward production possibilities curve between ice cream and hammers, identify graphically the opportunity cost of obtaining an additional hammer.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 14, 2013 at 12:39 AM (Answer #1)

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It is not possible to draw a graph here, so I will simply respond verbally.  Please look at a production possibilities curve (PPC) in your textbook for reference. 

A PPC shows us how much of two kinds of goods (or, in this case, two specific goods) can be produced using a given set of resources.  It is meant to illustrate that, when we make more of one good, we have to give up some of the other good.  In other words, it shows us the opportunity cost of making more of a particular good.

In the scenario you are asking about, you would have two axes on your graph, one labeled with “ice cream” and the other with “hammers.”  You could put any numbers you like on the axes to show how much of each product is made.  You do not need to use the same numbers on each axis.  However, you should probably be sure to have the numbers fairly close together on the ice cream axis and far apart on the hammer axis so that you will be able to illustrate the opportunity cost well.  Now, draw your curve.  It should bow out like the PPC in your book.

Put a dot at an arbitrary point on the line that corresponds to any number of hammers.  Now put another dot at a point on the line that corresponds to one more hammer.  Draw straight lines from each dot to the ice cream axis.  Wherever those lines fall will show you how much ice cream you have given up to make the hammer.  Subtract the lower number from the higher number and you have your opportunity cost for making the additional hammer.

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