Question

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?

1. We also increase the production of food.
2. We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter.
3. We cannot change the production of food.
4. The concept of opportunity cost does not apply along PPC.

Answer 1

2) We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter.

Step-by-step explanation:

The production possibilities curve shows how much we lose when we decide to produce something else. For example, if you decide to produce only food, you will not be able to produce any shelter, so the opportunity cost of producing only food is the lost benefits from producing shelter. The more you produce of some good, the less you will produce of the other good.

In this case, the opportunity cost of producing shelter is the lost benefit from producing food.