Question

Suppose an economy produces only two goods: Spanish ham and kugel. The production possibility frontier (PPF) is a downward-sloping straight line. Then,

a)   The opportunity cost of producing one more Spanish ham is constant

b)   The opportunity cost of producing one more Spanish ham is increasing

c)   The opportunity cost of producing one more Spanish ham is always zero

d)   None of the above

Answer 1

Option a

a)   The opportunity cost of producing one more Spanish ham is constant

A PPF depicts the efficient level of output means the output produced using all the available resources at an optimm level and the sloped of it denotes the opportunity cost of the production. A slope of the straight line is constant so the opportunity cost of producing it is constant. It means changing production from one unit of Spanish ham to one unit of Kugel need to move the inputs in the same amount as the same input is needed for the production of both inputs.