5. The opportunity cost of shifting production choices

The following graph shows the production possibilities curve (PPC) of an economy that produces drinking water and oil. The black points (plus symbols) represent three possible output levels in a given month. You can click on the points to see their exact coordinates.

040801201602002402803201614121086420OIL (Millions of barrels)DRINKING WATER (Millions of gallons)PPCABC

Suppose the economy initially produces 120 million gallons of drinking water and 10 million barrels of oil, which is represented by point A. The opportunity cost of producing an additional 40 million gallons of drinking water (that is, producing at point B rather than at point A) is barrels of oil.

Suppose, instead, that the economy currently produces 160 million gallons of drinking water and 8.4 million barrels of oil, which is represented by point B. Now the opportunity cost of producing an additional 40 million gallons of drinking water (that is, producing at point C rather than at point B) is barrels of oil.

Comparing your answers in the previous questions suggests that the opportunity cost of producing 40 million additional gallons of drinking water at point B is the opportunity cost of producing 40 million additional gallons of drinking water at point A. This reflects the .