Short Writing Assignment 1
Firstly, when analysing the graph, it can be observed that the opportunity cost of an
additional avocado as the economy moves from Point A to Point B is ⅓ bananas, and the
opportunity cost of an additional avocado as the economy moves from Point C to Point D is
1 banana.
Secondly, the opportunity cost of an additional banana as the economy moves from
Point E to Point D is ½ avocados and as the economy moves from Point C to Point B the
opportunity cost of an additional banana is 2 avocados. All opportunity cost calculations
were made by using the opportunity cost formula ( Opportunity cost = quantity to sacrifice of
some product/ quantity to gain of another product).
Finally, the observations are 100% consistent with the shape of this PPF. The reason
for the increasingly negative slope of the PPF graph is the law of increasing opportunity cost,
which states that: the opportunity cost of a certain product increases as the production
increases. However, the law only works if the point of production is on the frontier, otherwise
the law does not work because you can produce more of a product without producing less of
the other one.