PPCs for increasing, decreasing and constant opportunity cost | AP Macroeconomics | Khan Academy
Understanding Production Possibility Curves
Different Shapes of Production Possibility Curves
- The instructor presents three distinct production possibility curves (PPC) for rabbits and berries, each with unique shapes: straight line, bowed out, and bowed in. This prompts a discussion on the scenarios that lead to these different shapes.
- The straight-line PPC indicates a constant opportunity cost, while the bowed-out curve represents increasing opportunity costs as more resources are allocated to rabbit catching. Conversely, the bowed-in curve suggests decreasing opportunity costs.
Increasing Opportunity Cost
- The instructor explains that as more rabbits are caught, the opportunity cost in terms of berries increases. For example, catching the first rabbit may only cost 20 berries, but subsequent rabbits increase this cost significantly (40 berries for the second rabbit). This illustrates an increasing opportunity cost scenario.
- A detailed example is provided where catching five rabbits results in progressively higher berry losses: 20 for the first rabbit up to 100 for the fifth rabbit due to diminishing returns from easier-to-catch berries being exhausted first. This shape is characterized by a bowed-out PPC.
Decreasing Opportunity Cost
- In contrast, a scenario is presented where each additional rabbit caught becomes easier over time; thus, the opportunity cost decreases. For instance, catching the first rabbit might require giving up 100 berries initially but reduces to 20 berries by the fifth catch due to improved skills and efficiency in hunting.
- This situation leads to a bowed-in PPC shape indicating decreasing opportunity costs as one becomes more adept at catching rabbits with practice and better tools. Each incremental catch yields less sacrifice in terms of berry loss compared to previous catches.
Constant Opportunity Cost
- By deductive reasoning from previous discussions about increasing and decreasing costs, it can be concluded that a straight-line PPC represents constant opportunity costs—where every additional rabbit caught consistently results in sacrificing exactly 60 berries regardless of how many have been previously caught or how easy they are to catch. This reflects uniformity in trade-offs between resources used for both activities (catching rabbits vs picking berries).