Why does opportunity cost increase along the production possibility? Explain with an appropriate example .?

Question

Answer

Reason for Increase in Opportunity Cost along the Production Possibility:

Law of Increasing Opportunity Cost:

As a country produces more of a good, the opportunity cost of producing that good increases.
This is because resources are not equally efficient in producing different goods.

Example:

Production Possibility Frontier (PPF):

Consider a hypothetical economy that can produce either guns or butter.
Initially, the economy is producing only guns, and it decides to produce some butter instead.
Since resources are better suited for producing guns, the opportunity cost of producing butter is low initially.
As the economy produces more butter and moves along the PPF, the opportunity cost of producing butter increases.
This is because resources that are less efficient in producing butter are being used to produce it.

Implications:

Increasing opportunity cost indicates that to produce more of one good, the economy must give up increasing amounts of the other good.
This concept highlights the trade-offs that economies face when deciding how to allocate resources efficiently.