Question

Based on the production possibilities curve for books and pencils shown, what is the opportunity cost of producing a book?

How to find
there is only 2 numbers

Answer 1

I don’t have the graph, so I need the two numbers you mentioned. But here’s how to get the answer in either case.

Definition: the opportunity cost of one book = how many pencils you must give up to produce one more book.

Method (two common situations)

1) If the two numbers are two endpoints of a linear PPF (max pencils when books = 0 and max books when pencils = 0):
- OC of 1 book = (max pencils) ÷ (max books).
Example: If the graph shows 100 pencils when books = 0 and 20 books when pencils = 0, then OC of 1 book = 100 ÷ 20 = 5 pencils.

2) If the two numbers are two production points (pencils1, books1) and (pencils2, books2):
- OC of 1 book = (pencils1 − pencils2) ÷ (books2 − books1).
Make sure the numerator is pencils forgone and the denominator is additional books gained.
Example: Move from (80 pencils, 0 books) to (50 pencils, 3 books): OC per book = (80−50) ÷ (3−0) = 30 ÷ 3 = 10 pencils.

Send me the two numbers (or a picture of the PPF) and I’ll compute the exact opportunity cost.