Question

Show mathematically the concept of the law of increasing opportunity costs using the production possibilities curve....

Show mathematically the concept of the law of increasing opportunity costs using the production possibilities curve. Include a graph in your explanation.

Combination point Computers Television

A 50 0
B 40 20
C 25 40
D 0 60
Business   Economics   
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Answer #1

When we move from combination A to point B, the opportunity cost of producing 1 unit of TV = (50 - 40) / (20 - 0) = 0.5 units of computer.

When we move from combination B to point C, the opportunity cost of producing 1 unit of TV = (40 - 25) / (40 - 20) = 0.75 units of computer.

When we move from combination C to point D, the opportunity cost of producing 1 unit of TV = (25 - 0) / (60 - 40) = 1.25 units of computer.

Thus, it is clear from the above calculation that as we move from point A to B to C to D, opportunity cost is increasing.

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