5. Opportunity cost and production possibilities

Kenji is a skilled toy maker who is able to produce both trucks and drums. He has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of his time.

ChoiceHours Producing

Produced

(Trucks)(Drums)(Trucks)(Drums)A8040B62311C44217D26119E08020

On the following graph, use the blue points (circle symbol) to plot Kenji's initial production possibilities frontier (PPF).

Initial PPF

New PPF

0

1

2

3

4

5

6

7

8

30

25

20

15

10

5

0

DRUMS

TRUCKS

Suppose Kenji is currently using combination D, producing one truck per day. His opportunity cost of producing a second truck per day is per day.

Now, suppose Kenji is currently using combination C, producing two trucks per day. His opportunity cost of producing a third truck per day is per day.

From the previous analysis, you can determine that as Kenji increases his production of trucks, his opportunity cost of producing one more truck .

Suppose Kenji buys a new tool that enables him to produce twice as many trucks per hour as before, but it doesn't affect his ability to produce drums. Use the green points (triangle symbol) to plot his new PPF on the previous graph.

Because he can now make more trucks per hour, Kenji's opportunity cost of producing drums is it was previously.

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