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 $ext{MC} = \bigl<br>ightarrow \bigl(4, 6, 10, 14, 16\bigr)$ 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.