d). Two years later she added a third plant in another town. It is hard to imagine that most of us could even survive in such a setting. The plant for which the opportunity cost of an additional snowboard is greatest is the plant with the steepest production possibilities curve; the plant for which the opportunity cost is lowest is the plant with the flattest production possibilities curve. The slope of Plant 1’s production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. Depending on the context, it is usually one of the following two related concepts: Allocative or Pareto efficiency: any changes made to assist one person would harm another. Combination A involves devoting the plant entirely to ski production; combination C means shifting all of the plant’s resources to snowboard production; combination B involves the production of both goods. The reason an unregulated natural monopolist will produce at an economically inefficient quantity is A) due to the fact that the monopolist will equate marginal cost with price to determine the output level. We can think of each of Ms. Ryder’s three plants as a miniature economy and analyze them using the production possibilities model. Plant 3, though, is the least efficient of the three in ski production. Suppose a manufacturing firm is equipped to produce radios or calculators. An economy that fails to make full and efficient use of its factors of production will operate inside its production possibilities curve. Increasing the availability of these goods would improve the standard of living. The next 100 pairs of skis would be produced at Plant 2, where snowboard production would fall by 100 snowboards per month. In Panel (a) we have a combined production possibilities curve for Alpine Sports, assuming that it now has 10 plants producing skis and snowboards. The opportunity cost of each of the first 100 snowboards equals half a pair of skis; each of the next 100 snowboards has an opportunity cost of 1 pair of skis, and each of the last 100 snowboards has an opportunity cost of 2 pairs of skis. Points on the production possibilities curve thus satisfy two conditions: the economy is making full use of its factors of production, and it is making efficient use of its factors of production. If technology changes in an economy, the production possibilities frontier changes accordingly. Further, the economy must make full use of its factors of production if it is to produce the goods and services it is capable of producing. Please share your supplementary material! More generally, the absolute value of the slope of any production possibilities curve at any point gives the opportunity cost of an additional unit of the good on the horizontal axis, measured in terms of the number of units of the good on the vertical axis that must be forgone. Figure 2.8 “Idle Factors and Production” shows an economy that can produce food and clothing. To construct a production possibilities curve, we will begin with the case of a hypothetical firm, Alpine Sports, Inc., a specialized sports equipment manufacturer. (Q1) See: Productive Efficiency Suppose Plant 1 is producing 100 pairs of skis and 50 snowboards per month at point B. at a level that is inefficient given the resources available. Producing a snowboard in Plant 3 requires giving up just half a pair of skis. If there are idle or inefficiently allocated factors of production, the economy will operate inside the production possibilities curve. Suppose that, as before, Alpine Sports has been producing only skis. The bowed-out production possibilities curve for Alpine Sports illustrates the law of increasing opportunity cost. When an economy is operating on its production possibilities curve, we say that it is engaging in efficient production. 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