Production Possibility Frontier: drawing, calculating opportunity costs, and

allowing for technical change.

PPF and opportunity Cost
https://www.youtube.com/watch?v=m1hY3-y0-dM&feature=player_detailpage
https://www.youtube.com/watch?feature=player_embedded&v=Yx-D8z_LgSw
This exercise goes starts with drawing a PPF, and continues onto discussing opportunity costs,
and allowing for a change in the PPF due to a technical change.
Question: Imagine that a country can produce just two things: goods and services. Assume that
over a given period it could produce any of the following combinations:

Units of Goods
0
10
20
30
40
50
60
70
80
90
95

Units of Services
80
79
77
74
70
65
58
48
35
19
0

Using Excel:
a) Draw the countrys production possibility curve?

b) Assuming that the country is currently producing 40 units of goods and 70 units of services,
what is the opportunity cost of producing another 10 units of goods?

c) Now calculate the opportunity cost of each good after increasing the amount of goods from 80
to 90. Has the opportunity cost of each good increased or decreased.

d) Now read the theory of increasing opportunity cost from your text book and explain why
opportunity cost has de/increased in our example above.



e) Now we relax the ceteris paribus rule and assume that the technical progress leads to a 10%
increase in the output of goods for any given amount of resources. Draw the new production
possibility curve.