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Why does opportunity cost increase along the production possibility frontier?
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Why does opportunity cost increase along the production possibility fr...
Opportunity Cost Increase Along the Production Possibility Frontier
Opportunity cost is the value of the next best alternative foregone when a choice is made. It increases along the production possibility frontier due to the following reasons:
Scarce Resources
As we move along the production possibility frontier, resources are allocated to produce more of one good at the expense of producing less of another. This leads to an increase in opportunity cost as resources are limited and have alternative uses.
Law of Increasing Opportunity Cost
According to the law of increasing opportunity cost, as we produce more of a good, the opportunity cost of producing an additional unit of that good increases. This is because resources are not equally efficient in producing all goods, resulting in a higher opportunity cost for each additional unit produced.
Specialization
Along the production possibility frontier, firms tend to specialize in producing goods where they have a comparative advantage. This leads to an increase in opportunity cost as more resources are allocated to the production of a particular good, resulting in a higher opportunity cost for producing other goods.
Efficiency
As we move along the production possibility frontier, resources are utilized more efficiently to produce more goods. This increase in efficiency also leads to an increase in opportunity cost, as resources become more scarce and valuable in producing additional units of goods.
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Why does opportunity cost increase along the production possibility frontier?
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Why does opportunity cost increase along the production possibility frontier? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Why does opportunity cost increase along the production possibility frontier? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why does opportunity cost increase along the production possibility frontier?.
Why does opportunity cost increase along the production possibility frontier? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Why does opportunity cost increase along the production possibility frontier? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why does opportunity cost increase along the production possibility frontier?.
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