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I am a bit confused about whether there is a opportunity cost moving from within the PPF to be closer to the PPF and use some of the unemployed resources.

I current thinking is that there is zero opportunity cost of using unemployed resources to produce more of one good because the alternative is that these resources will not be used and hence no wants or needs will be satisfied. Does my reasoning work? Or is the opportunity cost the used resources? Of units of the second that can no longer be produced?

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  • $\begingroup$ Let's say you decide to produce butter using those currently unemployed resources, couldn't those same resources be used to produce bread in place of the butter. Therefore, I figure there is an opportunity cost as various items can be produced but only a limited can actually be produced. $\endgroup$
    – Sahaj
    Jan 27 at 8:44
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This would only work if the resources have literally no alternative uses (e.g. think of mana that according to the Judeo-Christian mythology could be only just used for immediate nourishment or it would just quickly spoil and bred worms, hence it had no other uses and could not even be saved or traded).

However, this does not hold in traditional PPF analysis. Usually PPF will look like the picture below (picture taken from Wikipedia). In such case there is always an opportunity cost. If you start at point A and move to point B on the PPF there is an opportunity cost, because instead of moving to B you could move to D. The opportunity cost of choosing allocation B is the allocation D that we forgone.

In order to get rid of opportunity cost you would have to get rid of all other options and have just one single use to which all resources can be allocated (which would be just a straight line overlapping either $y$-axis or $x$-axis). But such PPFs are not used because resources virtually always have alternative uses. In fact a proper PPF that goes beyond didactic purposes would even have more than just two dimensions, one for each good, as factors (i.e. labor, capital etc.) can be alternatively used in various production processes not just two.

enter image description here

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  • $\begingroup$ Thank your answer was really helpful. That question has been bugging me for a while $\endgroup$
    – J A
    Jan 27 at 17:12
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Even if you have an unused resource, you would have an opportunity cost it that item had value to someone else. If you could sell, or rent a resource, this that lost income would be opportunity cost. Like wise if keeping an unused asset (my vehicle I no longer drive due to covid) costs you money (plates, insurance) you have an opportunity cost if you don't get rid of it.

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