Jumping right in today.An opportunity is the ability to so something. An opportunity cost is the loss of the ability to do something. It’s what you give up or sacrifice when you do something.
An opportunity cost is the return of the next-best alternative use of the reources.
Opportunity costs aren’t the same as actual costs. Actual costs are real resources consumed, where opportunity costs are potential returns sacrificed.
The Production Possibility Frontier is the output of a process at maximum efficiency. The classic example of a production possibility frontier is a curve on a two-dimensional graph, where each axis of the graph represents a different good being produced. This sort of graph is a snapshot in time, with fixed technology and resources.
The production possibility chart demonstrates that scarce resources cannot produce every possible output at maximum, and therefore as resources are allocated to producing one good, production of another good must drop. Usually, output of one good falls at an increasing rate as fewer resources are allocated to it.
The PPF curve is always a concave curve, from the perspective of the 0,0 point. The frontier indicates the possible outputs at various resource allocations. Points ouside the curve are unattainable. They represent results which would require additional resources to attain. Points inside the curve are inefficient. They represent results which wouldn’t utilize all available resources.
The Law of increasing opportunity cost states that the cost of producing a unit of a particular good increases each time an additional unit is produced. This is because resources cannot be substituted for each other with equal efficiency.
The same concept can be expressed via a production possibility table. This is simply a numeric representation of the same data.