A production possibilities table for bananas and apples is shown below:

A production possibilities table for bananas and apples is shown below:
 

b. Does the economy above demonstrate the law of increasing opportunity cost?  

      No

c. Based on this information, what is the opportunity cost of a pound of apples?

     0.8 pound(s) of bananas

   What is the opportunity cost of a pound of bananas?

    1.25 pound(s) of apples

 

rev: 07_06_2017_QC_CS-92722

Explanation

a. Plot the 5 points corresponding to their coordinates of bananas and apples.

b. This production possibilities curve is a straight line, which indicates that the opportunity cost along the line does not change. This economy does not demonstrate the law of increasing opportunity cost.

c. As each pound of apples is added into production, you must give up 0.80 pounds of bananas (80 pounds of bananas/100 pounds of apples). The opportunity cost for a pound of bananas is the reciprocal of the first opportunity cost, 100 pounds of apples/80 pounds of bananas = 1.25 pounds of apples per pound of bananas.

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