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1.3 Increasing Opportunity Cost

Increasing Opportunity Cost (Guns vs Butter)

  • Key data (marginal costs of butter to produce one more gun):

    • MC_1 = 4 pounds of butter

    • MC_2 = 6 pounds of butter

    • MC_3 = 10 pounds of butter

    • MC_4 = 14 pounds of butter

    • MC_5 = 16 pounds of butter

    • Total butter forgone for 5 guns: 4 + 6 + 10 + 14 + 16 = 50 pounds

  • Interpretation: opportunity cost of butter rises as gun production increases → increasing opportunity costs (OC).

  • Marginal analysis basics (in this context):

    • For each additional gun, butter forgone equals the marginal cost of that gun.

    • The sequence ext{MC} = igl
      ightarrow igl(4, 6, 10, 14, 16igr) shows OC rising with output.

  • Four concise ways to explain increasing OC (must reference marginal analysis):

    • 1) Marginal perspective (explicitly marginal): as you produce more guns, the butter forgone per additional gun increases (MC rises).

    • 2) Stepwise increase framing: for each additional gun, you give up more butter than for the previous one.

    • 3) Rate framing: butter decreases at an increasing rate as guns rise; i.e., MC increases with output.

    • 4) Cost-curve framing: the marginal cost is rising; corresponding to an upward-sloping MC curve / diminishing returns; use the data (4, 6, 10, 14, 16) to back up the claim.

  • PPC visualization option:

    • Plot (Guns, Butter) along the PPC; the slope becomes steeper as you move to more guns, reflecting increasing OC.