Question
Edison is a talented artist who sells hand-crafted goods on his website. Edison currently crafts and sells both crochet hats and baskets. He spends 8
Edison is a talented artist who sells hand-crafted goods on his website. Edison currently crafts and sells both crochet hats and baskets. 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.
Choice | Hours Crafting | Produced | ||
(Crochet hats) | (Baskets) | (Crochet hats) | (Baskets) | |
A | 8 | 0 | 4 | 0 |
B | 6 | 2 | 3 | 10 |
C | 4 | 4 | 2 | 16 |
D | 2 | 6 | 1 | 19 |
E | 0 | 8 | 0 | 20 |
Suppose Edison is currently using combination D, producing one crochet hat per day. His opportunity cost of producing a second crochet hat per day is per day
- 1
- 3
- 16
- 19
Now, suppose Edison is currently using combination C, producing two crochet hats per day. His opportunity cost of producing a third crochet hat per day is per day
- 1
- 6
- 10
- 16
From the previous analysis, you can determine that as Edison increases his production of crochet hats, his opportunity cost of producing one more crochet hat
- Decreases
- Increases
- Remains constant
Suppose Edison 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 baskets. 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, Edison's opportunity cost of producing baskets is
- Higher than
- Lower than
- The same as
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