-The Table Above Represents Five Points on the Production Possibility

question 38

Essay

-The table above represents five points on the production possibility frontier for the small country of Baca, which produces only rugs (measured in thousands) and wheat (measured in thousands of bushels):
Does the production possibility frontier demonstrate the law of increasing opportunity cost? How can you tell?

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Definitions:

Relevant Costs

Relevant costs are those costs that should be considered when making decisions. They are directly affected by the decision in question and can include future costs that will differ among alternatives.

Fixed Manufacturing Expenses

Costs that do not vary with the volume of production, such as rent, depreciation of manufacturing equipment, and salaries of permanent factory staff.

Selling and Administrative Expenses

Expenses incurred from selling products or services and managing the business, excluding production costs.

Variable Selling

Expenses that change in proportion with the volume of sales, such as commissions or shipping costs.