Lecture Notes: Opportunity Cost and Production Possibilities Frontier (PPF)

Scenario E Overview

• Average daily catch: 1 rabbit
• Average daily gathering: 280 berries
• Focus on berries

Desire for More Protein

• Transition from scenario E to scenario D
• Objective: Catch more rabbits
• Trade-off: Must give up some berries

Trade-Off Analysis

• Scenario Change: From E to D
  • Catch 1 more rabbit (total 2 rabbits/day)
  • Decrease in berries: 40 berries
• Visualization: Production Possibilities Frontier (PPF)
  • Must stay on the PPF
  • Move along the curve, not beyond it

Opportunity Cost

• Definition: Cost of choosing one option over another
• In Context: Opportunity cost of 1 more rabbit
  • Need to give up 40 berries
  • Specific to scenario E
• General Statement: Opportunity cost changes depending on the scenario

Marginal Cost

• Definition: Opportunity cost of producing 1 more unit
• In Context: Marginal cost of 1 more rabbit
  • 40 berries
• Other Contexts: Often measured in monetary units (e.g., dollars)

Further Opportunity Cost Examples

• Scenario: Want to become vegetarians (move to scenario F)
  • Increase berries by 20, give up 1 rabbit
• Opportunity Cost Calculation
  • 20 berries = 1 rabbit
  • Marginal cost: 1 berry = 1/20 rabbit

Technical Considerations

• Accepting linearity for simplicity
• Opportunity cost of 1 berry: 1/20 rabbit
• Marginal cost of an extra berry: 1/20 rabbit

Encouragement for Further Thought

• Analyze different points on the curve
  • Example: Scenario B
  • Calculate opportunity costs for different scenarios
  • Consider: Cost of extra rabbit in terms of berries, and vice versa