The production possibilities curve for 2018 and 2022.
Explanation of Solution
Figure 1 shows the production possibilities curve for 2018 and 2022.
Figure 1
In the above graph, the vertical axis measures the quantity of Powerwall batteries and the horizontal axis measures the quantity of Model 3 sedan’s batteries. In 2018, the maximum production is 600 thousands of Model 3 sedan’s batteries or 600 thousands Powerwall batteries. In 2022, the maximum production is 600 thousands of sedan 3 batteries or 900 thousands power wall batteries.
Thus, the opportunity cost of producing one Model 3 sedan’s battery in 2018 is 1Powerwall battery.
Opportunity cost of producing one Model 3 sedan’s battery in 2022 is calculated as follows:
Thus, the opportunity cost of producing one Model 3 sedan’s battery in 2022 is 1.5 Powerwall batteries.
Concept introduction:
Opportunity cost: Opportunity cost refers to the value of forgone goods and services to receive the other goods and services.
Production Possibilities Frontier (
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- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning