Response Sheet Question 8/23/13Frank is planning on becoming a chef when he graduates but

he doesn’t know if he wants to go straight to work or go to culinary school. He knows he’ll be a better chef and have better job opportunities if he goes to school. but it costs

$50,000 dollars for two years. In two years he figures he could make $36,000 working and have two years cooking

experience.

1. What is Franks Opportunity Cost of going to culinary school?

2. What is one opportunity cost situation that you have experienced recently?

3. Is using Opportunity Cost in your own life worth it? Why or why not?

Response Sheet Question 8/23/13Please read the article “Hidden Costs, exposed”.

1. List two examples of opportunity cost described in the article.

2. List two opportunity costs situations you have experienced recently or foresee in the future.

3. Is looking at situations through the lens of opportunity costs useful? Why or why not?

Production Possibilities

Frontier

Beyond Opportunity CostWe’ve been discussing

Opportunity Cost, what you give up when you make a

choice with you resources.

black and white.

Another tool used by economists, and you too, is something called Marginal

Analysis.

This tool examines the effects of small increases or decreases to the situation.

or

and

Let’s say a clothing company makes only t-shirts. By choosing to make t-shirts they don’t have the

resources to make sweatshirts. That’s Opportunity Cost. But can they really not make any sweatshirts?

Under marginal analysis the clothing company might do a little math and realize if they reduce the number of t-shirts they make by 1000 a month, they can use

those extra resources to make 500 sweatshirts.

Examining the tiny changes in how resources are used is known as Marginal Analysis.

Only 1!

Both!

Often, people like to view marginal analysis visually and this results in a model known as a

Production Possibilities Frontier (Curve).

Now, there are rules to the PPC model.

Making a PPF model assumes three things...

1. Fixed Resources: The quantities and quality of all resources stay the same.

2. Fully employed Resources: All of your resources are being used and are used efficiently.

3. Technology is unchanged: How the good is produced goes unchanged.

Let’s give a Production Possibility Frontier a try!

T-shirts Per month - 40,000

40

30

20

10

1

All of our resources

T-shirts(In 1000’s)

Sweatshirts(In 1000’s)

0 1 3 5 7 10

a. All resources to T-shirtsa

B. Drop T-shirts production by 10,000b

c

d

e

Sweatshirts Per month - 10,000

c. Drop T-shirts production by 10,000

d. Drop T-shirts production by 10,000

e. All Resources to Sweatshirts

This point is an Inefficient Point

This point is an Unattainable point

The effect of purchasing faster machines?The effect of having to lay

off workers?

Now it’s your turn.

Let’s say three guys are starting a business but they can’t decide between which kind, mowing lawns or washing cars.

Per hour

Lawns Cars

Larry

Moe

Curly

1 1

1 2

2 1

10 hours

Lawns

Cars

a. All Lawns

B. All Cars

c. 50/50 Cars and Lawns

d. Larry 50/50, Moe Cars, Curly Lawns