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The following is a list of data points on a PPF, answer questions regarding opportunity cost.

! [Graph representation] (https://imgur.com/kZsgczw)

! [data points] (https://imgur.com/VSfZqFj)

  1. What is the opportunity cost of producing the first 500 Toyota?

The opportunity cost of producing the first 500 Toyota is 600. Calculations: 5000-4400

  1. What is the opportunity cost of moving from producing 3725 Lexus to 3950 Lexus?

Opportunity cost = 1500-1000 = 500 Toyotas

  1. What is the opportunity cost of producing 5000 Lexus? The opportunity cost of producing 5000 Lexus is 0.

I am currently learning economics and I came across a homework question I am uncertain about my answers.

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    $\begingroup$ Please try to find a better title and present the question and the solution in the post. $\endgroup$
    – emeryville
    Mar 31, 2018 at 20:55
  • $\begingroup$ @emeryville Is the title I put better or is there a certain format I should use for the title? Thank you! $\endgroup$
    – Angel So
    Mar 31, 2018 at 21:11
  • $\begingroup$ You may try something like "Production possibility frontier and opportunity cost". You can also draw a PPF graph to present the data. Please check the help page to improve editing. $\endgroup$
    – emeryville
    Mar 31, 2018 at 21:32
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    $\begingroup$ @emeryville I have changed the title, added a graph representation and my own solution. Is there any other changes I may need to make? $\endgroup$
    – Angel So
    Mar 31, 2018 at 22:39

3 Answers 3

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Note that the concept of Opportunity Cost is used in order to compare a choice to the direct benefit of alternative choices.

How do we go about using it in Economics? See here.

Regarding a convex Production Possibility Frontier and opportunity costs, you can find helpful examples on the Internet. Here is one

enter image description here

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    $\begingroup$ It should be $B$ to $C$ instead of $C$ to $C$ in the picture $\endgroup$
    – Green.H
    Jun 1, 2018 at 14:55
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  1. It is correct that you must forego $600$ Lexus cars to produce $500$ Toyota cars.

  2. And it is right that you have to give up $500$ Toyota vehicles to increase a production of Lexus as required.

  3. However, it is not correct that you have to forego $0$ Toyota cars to produce $5,000$ Lexus cars. In fact, you have to give up the entire production of Toyota cars to have that amount of Lexus cars produced. Thus, the opportunity cost of producing $5,000$ Lexus cars is $2,000$ Toyota cars.

For calculating unit opportunity costs, you may want to apply the formulas provided in @everyville's post

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Your answers in the first and second questions are correct, as another post noted. However, the last question cannot be answered: we would have to know what would be the number of Toyota produced when production of Lexus is zero, in order to answer that.

By the way the Labels in your graph are wrong - it should read "Lexus" in the vertical and "Toyota" in the horizontal axis.

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