Production Possibilities and Resource Allocation: Microeconomics Help!

[davie08]

Microeconomics help!(5-5)

Homework Statement

Refer to the above diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles:
Answer


a)cannot be realized because resources are fully employed.


b)will cost 1 unit of computers.


c)will cost 2 units of computers.


d)will cause some resources to become unemployed.

Homework Equations

The Attempt at a Solution

these questions always screw me up but I'm pretty sure it would cost 2 computers for the production of 2 more bicycles.

 

[nate808]

Hello,

You are correct, the production of 2 more units of bicycles would cost 2 units of computers at point D in the diagram. This is because the opportunity cost of producing bicycles is equal to the slope of the production possibilities curve (PPC) at that point, which is 2 computers. This means that in order to produce 2 more bicycles, 2 units of computers must be given up. This is because resources are fully employed and any increase in the production of one good must come at the expense of producing less of the other good.

I hope this helps. Let me know if you have any other questions about microeconomics.