PPF AND OPPORTUNITY

COST
TYPES OF OPPORTUNITY COST
BE REMINDED ..WHAT IS OPPORTUNITY
COST

 Making a choice implies sacrifice. For example if you go to kfc with limited pocket
money you may choose one item and give up another. You cannot buy everything you see
because your money is limited.
 The choice of a zinger(kfc sandwich ) means giving up a 2 piece and fries. The sacrifice
of giving up the 2 piece and fries is referred to as the opportunity cost.
 Opportunity cost may be defined as the sacrifice of the next best choice or alternative
given up whenever economic choices are made.
REMEMBER FROM LAST CLASS
Shape of the ppf IS DETERMINED BY:
HOW DOES THE PPF SHOW
OPPORTUNITY COST :
ANOTHER EXAMPLE
TYPES OF OPPORTUNITY COST

 CONSTANT OPPORTUNITY COST

 INCREASING OPPORTUNITY COST
 DECREASING OPPORTUNITY COST
GRAPHICAL REPRESENTATION OF
EACH TYPE OF PPF
CONSTANT OPPORTUNITY COST
Constant opportunity cost

 A production possibility frontier that takes a linear shape illustrates constant opportunity
cost. This implies that for every consecutive increase in the production of one commodity
an equal amount of the other good is given up. In other words the amount given up will
remain constant ..

 Look at the example below

WHY IS THE CURVE A STRAIGHT LINE
OR LINEAR CURVE
INCREASING OPPORTUNITY COST
Increasing opportunity cost

 This type of PPF shows increasing opportunity cost and is concave to the origin.
 The law of increasing opportunity cost is the concept that as you continue to increase
production of one good, the opportunity cost of producing that next unit increases. This
comes about as you reallocate resources to produce one good that was better suited to
produce the original goo
Increasing opportunity cost
WHY IS THE PPF SHAPED LIKE THIS ?
DECREASING OPPORTUNITY COST
DECREASING OPPORTUNITY COST
Decreasing opportunity cost

 This PPF has a continually increasing slope. In this case, for every consecutive increase in
the production of one commodity less and less of the other is given up.
APPLICATIONS
How to calculate opportunity cost ?
COPY, attempt AND CHECK YOUR
ANSWER WITH THE SOLUTION BELOW
SOLUTION TO QUESTION ONE a
SOLUTION TO QUESTION 1b
SOLUTION TO 1c
TAKE YOUR TIME AND REVIEW THIS
OVER AGAIN ………..

 AND AGAIN ………….

 AND AGAIN …………….
HOME WORK FOR WEDNESDAY to be
done IN YOUR BOOKS