Micro Economics Introduction Class 11

 

  Opportunity cost refers to the value of a factor (resource) in its next best (or second best) alternative use.

  MOC tends to rise, because as resources are continuously shifted from opportunity-1 to opportunity-2, their existing specialised use is disturbed. when the specialised use of resources  ( use of resources where their productivity is high) is increasingly disturbed, the loss of output (indicating marginal opportunity cost) must also be increasing.

 

 

  PPC slopes downward from left to right because in a situation of fuller utilisation of resources, production of both the goods cannot be increased . More of Good-X can be produced only with less of Good-Y PPC is concave to the point of origin because to produce each additional unit of Good-X, more of Good-Y will have to be sacrificed than before. Opportunity cost of producing every additional unit of Good-X tends to increase in terms of the loss of production of Good-Y. In other words, transformation(or shifting) of resources from one use to the other will obey the law of increasing marginal opportunity costs. In other words PPC is concave to the origin, because as more and more resources are shifted from the production of one good (opportunity-1) to the production of other good (opportunity-2), marginal opportunity cost tends to rise.

  1) MOC is the rate at which output of Good-Y is to be sacrificed for every additional unit of Good-X. It refers to the slope of PPC. The MOC measures the amount of a good that has to be sacrificed for each additional unit of the other good. MOC = Δ Y (loss of output) /  Δ X (gain of output)  2)  CASE 1) Thus if we want 1 burger we would have to sacrifice one house. Thus the marginal opportunity cost would be 1 pizza for an additional unit of Burger. CASE 2) If we want 1 more burger then we would have to sacrifice 2 pizza's or 2 pizza's for an additional unit of burger. 3)

  Production Possible Curve is a curve showing alternative production possibilities of two goods with given resources and techniques of production (technology). It is also called transformation line or transformation curve because it indicates that if more of Good-X is to be produced then factors of production will have to be withdrawn from the production of Good-Y and transferred to the production of Good-X. In other words, Good-Y is transformed into Good-X.