40 T 35 PPC 30 25+ 20 15 10 80160240 320 400 480 560 640 COAL (Millions of tons)

Question

40 T 35 PPC 30 25+ 20 15 10 80160240 320 400 480 560 640 COAL (Millions of tons) Suppose the economy initially produces 15 million pieces of clothing and 400 million tons of coal, which is represented by point A. The opportunity cost of producing an additional 5 million pieces of clothing (that is, moving production to point B) is stons of coal. Suppose, instead, that the economy currently produces 336 million tons of coal and 20 million pieces of clothing, which is represented by point B. Now the opportunity cost of producing an additional 5 million pieces of clothing (that is, moving to point C) is stons of coal. Comparing your answers in the two previous paragraphs, you can see that the opportunity cost of 5 million additional pieces of clothing at point 8 is the opportunity cost of 5 million additional pieces of clothing at point A. This reflects the

Explanation / Answer

- The opportunity cost of producing an additional 5 million pieces of clothing ( means from point A to point B) is 400 - 336 = 64 tons of coal.

As at pont B, the coal is 336 million of tons while at point A it is 400million of tons.

- The opportunity cost of producing an additional 5 million pieces of clothing ( means from point B to point C) is 336 - 240 = 96 tons of coal.

As at point C,the coal is 240 million o tons while at point B it is 336 millions of tons.

- Comparing your answer in the two previous paragraph, you can see that the oppportunity cost of 5 million additional pieces of clotingat point B is greater than the opportunity cost of 5 million additional pieces of clothing at point A. Tis reflects the law of increasing opportunity costs .

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