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In the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). If the shape of the PPF curve is a straight-line, the opportunity cost is constant as the production of different goods is changing. But, opportunity cost usually will vary depending on the start and end points.
This equation represents Crusoe's PPF. The slope of this PPF measures the Marginal rate of transformation (MRT), i.e., how much of the first good must be given up in order to increase the production of the second good by one unit. If Crusoe works one hour less on hunting fish, he will have 4 less fish.
The production possibilities frontier (PPF) for guns versus butter. Points like X that are outside the PPF are impossible to achieve. Points such as B, C, and D illustrate the trade-off between guns and butter: at these levels of production, producing more of one requires producing less of the other. Points located along the PPF curve represent ...
First and foremost, the discounted rate applied in DCF analysis is influenced by an opportunity cost, which impacts project selection and the choice of a discounting rate. [21] Using the firm's original assets in the investment means there is no need for the enterprise to utilize funds to purchase the assets, so there is no cash outflow.
In linear programming, reduced cost, or opportunity cost, is the amount by which an objective function coefficient would have to improve (so increase for maximization problem, decrease for minimization problem) before it would be possible for a corresponding variable to assume a positive value in the optimal solution.
Similarly, if the third kilogram of seeds yields only a quarter ton, then the marginal cost equals per quarter ton or per ton, and the average cost is per 7/4 tons, or /7 per ton of output. Thus, diminishing marginal returns imply increasing marginal costs and increasing average costs. Cost is measured in terms of opportunity cost. In this case ...
When the amount of one factor of production increases, the production of the good that uses that particular production factor intensively increases relative to the increase in the factor of production, as the H–O model assumes perfect competition where price is equal to the costs of factors of production. This theorem is useful in explaining ...
He stated a similar condition for production, namely that the production–possibility frontier (PPF, to which he gave the alternative name of 'productive indifference curve') should be tangential with an indifference curve for the community. He was one of the originators of the PPF, having used it in a paper on international trade in 1932. [24]