State what is given up and whether your answer is total or per unit.
Moving along a PPC reallocates fully used resources. The opportunity cost of extra output is the other output forgone over the change being considered. Divide output forgone by extra output obtained only when a per-unit cost is requested. A straight frontier has a constant trade-off. A bowed-out frontier can show increasing opportunity cost. As workshops expand repairs, they may need to transfer workers and tools better suited to benches, giving up more bench output for each extra repair. These are model descriptions; the slope is not a selling price. At an interior point, better use of idle resources may allow more of both goods without the same frontier trade-off.
- Total opportunity cost
- The amount of the other output given up over the whole move. Ten extra repairs that require ten fewer benches cost ten benches in total.
- Per-unit opportunity cost
- Output given up divided by extra output gained. Ten benches divided by ten extra repairs is one bench per repair, not a dollar price.
- Constant or increasing cost
- A straight frontier shows a constant trade-off. On a bowed-out frontier, equal increases in one output can require increasingly large sacrifices of the other.
- Why the sacrifice can grow
- At first, workshops can transfer workers and tools relatively suited to repairs. Further expansion draws on resources better suited to benches, so each extra repair can sacrifice more bench output.
| Move | Extra repairs | Benches forgone | Benches per extra repair |
|---|---|---|---|
| (10,45) to (20,35) | 10 | 10 | 1 |
| (20,35) to (30,20) | 10 | 15 | 1.5 |
Worked example: More repairs, fewer benches
Use the workshop frontier: A = (10 repairs,45 benches), B = (20,35), F = (30,20). Quantities are weekly totals; resources and technology are unchanged.
- From A to B, repairs rise by 10 and benches fall by 10. The opportunity cost of these ten extra repairs is ten benches.
- Per additional repair over that interval, the cost is 10 / 10 = 1 bench. Keep the units: benches per repair.
- From B to F, another ten repairs cost 15 benches, or 1.5 benches per repair over the interval. The opportunity cost increases.
- The values describe these production intervals. They do not tell us a market price, a monetary cost or whether society prefers the extra repairs.
Watch out for this
A steeper PPC means the chosen output is more expensive in dollars.
Its trade-off is in units of the other output. Money prices require separate information.
Check your understanding
A frontier move raises meals from 10 to 14 and reduces repairs from 20 to 12. What is the opportunity cost per additional meal over this interval?
- Eight repairs per meal.
- Half a repair per meal.
- Two repairs per meal.