Production Possibilities, Opportunity Cost & Marginal Cost – Scenario E

Scenario Overview

We begin in Scenario E on a Production Possibilities Frontier (PPF).
- Average daily output: 1 rabbit & 280 berries.
- Characterised as a “berry-heavy” choice of consumption/production.
The decision maker suddenly desires “more protein”, i.e. more rabbits.

The PPF represents all efficient combinations of two goods (rabbits & berries) that can be produced with existing resources and technology.
- Points on the frontier = attainable & efficient.
- Points inside the frontier = attainable but inefficient.
- Points outside the frontier = unattainable / impossible with current resources.
Moving along the frontier illustrates trade-offs; producing more of one good necessarily means producing less of the other.

Desired adjustment: +1 rabbit (from 1 → 2 rabbits per day).
Visual move on the PPF from point E to point D.
Resource re-allocation outcome:
- Rabbits: \Delta R = +1
- Berries: \Delta B = -40 (drop from 280 → 240 berries).

Definition: The value of the next best alternative forgone when a choice is made.
Here, the opportunity cost of producing one more rabbit in Scenario E is the berries we must sacrifice.
- \text{Opportunity Cost}_{E}(1\;\text{rabbit}) = 40\;\text{berries}
- Expressed as a ratio: \displaystyle OC = \frac{\lvert \Delta B \rvert}{\Delta R} = \frac{40}{1} = 40 berries per rabbit.
Key insight: Opportunity cost can vary at different points on a non-linear PPF; it is not necessarily constant along the curve.

Marginal Cost = Opportunity cost of producing one additional unit of output.
In this context:
- MC_{rabbit\,|\,E} = 40\;\text{berries per rabbit}
Using “cost” here does not mean monetary expenditure but rather the sacrificed output of the alternative good.

Attempting to climb “north-east” of the curve (toward more of both goods) is impossible; that region is labelled unattainable.
The PPF slopes downward (negative slope) and typically is concave to the origin, reflecting increasing opportunity costs as resources are re-allocated.
Movement from E to D shows a steeper section of the curve compared to earlier, implying a larger berry sacrifice for each rabbit gained.

Understanding opportunity cost guides efficient resource allocation—helpful for individual foragers, firms, or entire economies.
Highlights that choices have trade-offs; “there is no free lunch.”
Reinforces the importance of remaining on the PPF for efficiency; operating inside it means resources are idle or mis-allocated.

Opportunity Cost: What is given up to get something else.
Marginal Cost: Opportunity cost of one additional unit.
PPF (Production Possibilities Frontier): Graph of all efficient production combinations for two goods given fixed resources & technology.