Question

Increasing opportunity cost implies that A. the production possibilities frontier will be a straight line. B. the society will be producing inside its production possibilities frontier. C. producing additional units of one good results in proportionately smaller reductions in the output of the other good. D. producing additional units of one good results in increasing amounts of lost output of the other good.

Answer 1

Answer: D

Explanation: Opportunity cost can be described as the benefits an individual / firm / economic agent forfeits when he chooses a particular alternative over other alternatives.

Increasing opportunity costs implies that as production increases, the loses of the alternative forfeited is also increasing.

The concept of opportunity cost can be understood by studying what is known as the Production Possibility Frontier (PPF).

The PPF is a curve which shows the two combination of goods that can be produced by an economic agent given fixed amount of resources.

Points within the curve shows that the economic agent is under- utilizing it's resources. In the sketch attached, an economic agent under utilizing it's resources is shown with point a.

Points within the curve shows that the economic agent is over- utilizing it's resources. In the sketch attached, an economic agent over utilizing it's resources is shown with point b.

The only economic viable point of production is on the curve. The economic agent producing on the PPF in the sketch attached is illustrated with point c.

The curve shows as more of one product is produced, the opportunity cost of the other product increases.