One way to examine the marginal cost of a good is by looking at the opportunity cost using the production possibilities curve (PPC) model. Draw a correctly labeled PPC graph for computers and cell phones which exhibits constant opportunity cost. To the right of this PPC graph, draw another PPC graph for corn and grapes which exhibits increasing opportunity cost.
Explain what the shape of each PPC implies about the resources used to make the goods.
Indicate whether the marginal cost curve for the production of cell phones would be upward-
Indicate whether the marginal cost curve for the production of corn would be upward-
Given your answer to part c, indicate whether the total cost curve for corn production rises or falls as more corn is produced, and whether it does so at an increasing, decreasing, or constant rate.
Assuming there is also a fixed cost of corn production, indicate whether the average fixed cost curve for corn production is upward-
Rubric for FRQ (10 points)
1 point: The axes on the left graph are labeled “Quantity of computers” and “Quantity of cell phones,” and the axes on the right graph are labeled “Quantity of corn” and “Quantity of grapes.”
1 point: The left PPC is a straight, downwardsloping line.
1 point: The right PPC is bowed out from the origin.
1 point: Resources are equally suitable for the production of computers and cell phones, but resources are not equally suitable for the production of corn and grapes.
1 point: The marginal cost curve for the production of cell phones would be horizontal.
1 point: The marginal cost curve for the production of corn would be upward-sloping.
1 point: Each additional bushel of corn would cost more than the previous bushel due to the increasing opportunity cost of production or due to having to use progressively less suitable resources that were better suited for grape production.
1 point: The total cost curve rises at an increasing rate.
1 point: The average fixed cost curve (as always) is downward-sloping.