How does opportunity cost relate to the PPC? 

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A PPC or production possibilities curve maps all possibilities for producing various quantities of 2 different goods whose production depends on shared resourced. Thus, at one end, the curve shows the maximum quantity of good A that can be produced if you produce none of good B, and at the...

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A PPC or production possibilities curve maps all possibilities for producing various quantities of 2 different goods whose production depends on shared resourced. Thus, at one end, the curve shows the maximum quantity of good A that can be produced if you produce none of good B, and at the other end, it shows the maximum quantity of good B that can be produced if you produce none of good A.

For example, take a small bakery might make cakes and pastries. If there is only 1 baker working, and she bakes 1 cake per hour or 24 pastries in an hour (but not both), then in an 8-hour shift she can make 8 cakes, 192 pastries, or any number along or below the curve drawn between these two points. Along this curve of maximum production, a cake can be traded for 24 pastries, and vice versa. Below the curve are shown all points that do not maximize total production. A PPC is useful for quantifying the trade-off between producing 2 goods. In combination with data on demand for each good and the profit margin for each, one can determine what combination of producing each good is likely to maximize profits.

Opportunity cost is what one must sacrifice in order to take a specific action. In the previous example, the opportunity cost of baking 1 cake is 24 pastries and vice versa. In reality, of course, opportunity costs are much more complicated because there is nearly always more than 2 possible paths of action. For example, a more realistic bakery probably has a number of different kinds of cakes which all take different lengths to make and have different levels of demand and profit margins. The same for pastries, and perhaps our bakery also creates doughnuts, fudge, sandwiches, drinks, and a number of other goods. In addition, realistically speaking, we also need to consider how our baker allocates their time with regard to non-baking tasks. For example, when and how long they spend on breaks, on cleaning up the store, on customer service, on thinking about new items to add to the store, etc. Baking a cake means not doing any of these tasks while focused on the cake, and thus the opportunity cost is far more complicated than simply a number of pastries.

As this example shows, trying to capture the real opportunity cost of producing a good is nearly impossible. A PPC lets us quantify a specific aspect of the opportunity cost of producing one good: how much of a specific other good could be produced with the same resources. Thus, a PPC should not be understood as mapping the total opportunity cost but rather as giving a handle for understanding one specific and simplified aspect of the opportunity cost.

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Opportunity cost is an economic principle that quantifies what must be sacrificed in order to accomplish something. Essentially opportunity cost says that if you choose to perform one action, you give up a certain amount of another action. For instance, if you choose to go to sleep, you give up a certain amount of homework or socializing time.

The PPC, or Production Possibilities Curve, shows a graphical representation of how to optimize production. The curve takes into consideration the different possibilities of how much of each product can be produced. In this way, the curve deals directly with opportunity cost as it shows the change in production for each good that will result from adding or removing production of a separate good and analyzes how to profit the most from mixed production.

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Opportunity cost is an intrinsic variable in the production possibilities curve, or PPC. The opportunity cost is the cost of taking one action, as measured in the other actions that need to be given up to do it. For example, in the morning, you have the option to wake up and go for a jog, or sleep in. The opportunity cost of going for a jog is that you must sacrifice sleep.

So, the production possibilities curve is how much of an item you can produce, typically compared with other items you may consider producing. It is linked with cost and opportunity cost. If you are a firm making footballs and soccer balls, it may cost $3 to produce a football and $1.50 to produce a soccer ball. So, to produce 1 football, you must sacrifice making 2 soccer balls.

This is very effective for determining the most efficient and profitable format of a business. For example, if the demand is equal and you have a better profit margin on soccer balls, your firm should simply produce soccer balls exclusively. This is certainly not the case, but it helps to balance out which products you should focus on and produce more of.

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In economics, the acronym PPC stands for “production possibilities curve.”  This is a curve that illustrates, among other things, the concept of opportunity cost.  In order to see the relationship, please refer to this link.  I will be using the numbers from that link to show how a PPC represents opportunity cost.

Opportunity cost is the value of what we give up when we choose to take a certain action.  Because we have limited resources, we cannot have unlimited amounts of everything.  When we use resources to make one thing, we give up the chance to use them to make another thing.  This is opportunity cost.

In the PPC in the link, our economy can produce crab puffs and storage sheds.  It can produce only limited numbers of each.  Every time more of one thing is made, less of the other can be made.  In this scenario, when we go from making 0 storage sheds to 1 storage shed, we go from making 450 crab puffs to 445 crab puffs.  We have given up 5 crab puffs to make a storage shed.  This is the opportunity cost of the first storage shed. 

Thus, a PPC shows us how opportunity cost works.  It shows us that whenever we make more of one thing, we have to give up the chance to make something else.

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