Question

The production possibilities curve below shows the hypothetical relationship between the production of guns (national defense) and butter (social goods) in an economy. Combination Guns Butter A 0 4 B 14 3 C 26 2 D 36 1 E 44 0 What is the marginal opportunity cost of producing the second unit of butter? What is the total opportunity cost of producing the second unit of butter? What is the marginal opportunity cost of producing the third unit of butter? What is the total opportunity cost of producing the third unit of butter?

Answer 1

The marginal opportunity cost of producing the second unit of butter is 12 guns, and the total opportunity cost for the second unit is 26 guns. The marginal and total opportunity costs are the same (12 guns and 26 guns, respectively) for the third unit of butter.

Step-by-step explanation:

Understanding the production possibilities curve (PPC) helps in analyzing the tradeoffs and opportunity costs associated with producing different goods. In the given scenario, we have a hypothetical economy that can produce guns and butter with the following combinations:

• A: 0 guns, 4 butter
• B: 14 guns, 3 butter
• C: 26 guns, 2 butter
• D: 36 guns, 1 butter
• E: 44 guns, 0 butter

To find the marginal opportunity cost of producing the second unit of butter, we look at the change in guns produced when moving from point B to point C. This change is 26 guns - 14 guns = 12 guns. So, the marginal opportunity cost of the second unit of butter is 12 guns.

The total opportunity cost of producing the second unit of butter is found by looking at the difference in guns produced from point A (0 butter) to point C (2 butter), which is 26 guns - 0 guns = 26 guns in total.

Next, the marginal opportunity cost of the third unit of butter is the change in guns produced when moving from point C to point B, which is already calculated as the same 12 guns. The total opportunity cost of producing up to the third unit of butter includes the costs from A to B plus the cost from B to C, which sums to 14 guns + 12 guns = 26 guns.

Answer 2

Marginal opportunity cost is the number of units of good 1 that are sacrificed for producing an additional unit of other good.

A) If we increase the production of butter from 1 to 2 then Guns production decreases from 36 to 26. Thus opportunity cost of second unit of butter is 10 guns.

B) Total opportunity cost of 2nd unit of butter = 18 guns

C) marginal opportunity cost of producing the third unit of butter = 12 Guns

D) Total opportunity cost of third unit of butter = 30 Guns