5. Opportunity cost and production possibilities Sam is a talented artist who sells handcrafted goods on his website. Sam currently crafts and sells both crochet hats and pillows. He spends 8 hours a day working on crafts. The following table gives different daily output scenarios depending on how much of his time is spent on each good. Hours Crafting Produced Choice (Crochet hats) (Pillows) (Crochet hats) (Pillows) A s o 4 o B 6 2 3 11 c 4 4 2 15 D 2 6 1 13 E o 8 o 19 On the following graph, use the blue points (circle symbol) to plot Sam's initial production possibilities frontier (PPF). 30 O 25 ' Initial PPF A 20 -- U3 New PPF E o 15 _l =1 D. 10 5 __ 0 | l l | l l | l 0 1 2 3 4 5 6 7 8 CROCHET HATS Suppose Sam is currently using combination D, producing one crochet hat per day. His opportunity cost of producing a second crochet hat per day is V per day. Now, suppose Sam is currently using combination C, producing two crochet hats per day. His opportunity cost of producing a third crochet hat per day is V per day. From the previous analysis, you can determine that as Sam increases his production of crochet hats, his opportunity cost of producing one more crochet hat V . Suppose Sam buys a new tool that enables him to produce twice as many crochet hats per hour as before, but it doesn't affect his ability to produce pillows. Use the green points (triangle symbol) to plot his new PPF on the previous graph. Because he can now make more crochet hats per hour, Sam's opportunity cost of producing pillows is V it was previously