# Opportunity Cost Example

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```					     SCARCITY
Since we must choose, we must
examine what we give up
the value of the highest forgone
alternative is “opportunity cost”

Opportunity Cost Example
The      Value of   Opportunity
Choice    Activity      Cost

Opportunity costs can be measured:

1
THE PPC
PURPOSE: to show all of the possible
combinations of two goods or
services
ASSUMPTIONS:
1. Within a stated period of time
2. Resources will NOT change
3. Resources used at most efficient
level
A
B
C
D
F

1   2 3 4 5 6 7 8 9 10
Emotional Satisfaction (in utils)
from partying like a rock star
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A
\$ worth of minerals
(in billions)

C

B
0                                     10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Acres of Wilderness (in millions)

2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A
\$ worth of minerals
(in billions)

D

C

B
0                                     10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Acres of Wilderness (in millions)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A
\$ worth of minerals

E
(in billions)

D

C

B
0                                     10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Acres of Wilderness (in millions)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A
\$ worth of minerals

E
(in billions)

D

C

B
0                                     10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Acres of Wilderness (in millions)

What is the cost of moving from Point
D to Point E?

3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A
\$ worth of minerals

E
(in billions)

D

C

B
0                                     10 20 30 40 50 60 70 80 90 100 110 120 130 140 150
Acres of Wilderness (in millions)

What do we gain?
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A
\$ worth of minerals

C
(in billions)

D
F
E

B
0                                     1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Acres of Wilderness (in millions)

A point inside the PPC illustrates
underutiliaztion.

Production Combinations
Desktop       Laptop
Computers     Computers

A     14,000,000                0
B     12,000,000            3,000,000
C     9,000,000             5,500,000
D     5,000,000             7,500,000
E          0                9,000,000
Activity: Production Possibilities Curve
In your notes, construct a PPC using the
information above.

4
5

```
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