PPCs+-+Law+of+Increasing+Opportunity+Costs

The **Law of Increasing Opportunity Costs** (aka **The Law of Diminishing Returns**) basically states that beyond a certain point, adding additional units of resources to a production process will provide successively smaller increments of additional product. This is due to crowding, adding less experienced or less appropriate resources, and so on.

One of the most practical examples of this is a factory situation and the number of workers employed. Due to the limited amount of space in any given factory, only a certain number of laborers can be employed at one time to obtain maximum efficiency. Once that number has been exceeded, each additional worker will lower the efficiency of the factory due to unnecessary crowding.

Another example is in a hypothetical country where the only two production options are crab puffs and storage sheds. the more storage sheds you make, the fewer crab puffs you will be able to make. also, as you make more storage sheds, the number of crab puffs you can make decreases at a greater rate. this is illustrated by the numbers along the PPC curve below that decrease increasingly, indicated an increasing loss of crab puffs, and the number of robots increases.you can make less crab puffs when you are making more storage sheds because you are using your resources towards making storage sheds where they would have gone to the crab puffs making factory otherwise. the reason the opportunity costs increase exponentially is that for the first storage sheds, you would only send the worst crab puff makers over to the shed factory. for the second shed, you would have to send over slightly better crab puff makers so your crab puff production would decrease even more, and so on.



there are certain assumption that are required to make this law true. they are that resources are fixed, technology stays the same, there are only two goods, and that there is full employment and production.

for more information about increasing opportunity costs, visit the following sites: [|http://en.wikipedia.org/wiki/Diminishing_returns]

[|http://www.nvcc.edu/home/sdas/Oppcost/increasingoppcost.htm]

[|http://books.google.com/books?id=XzCE3CjiANwC&pg=PA27&lpg=PA27&dq=increasing+opportunity+costs&source=web&ots=aRKGA_1LbO&sig=S4YEbWvigJf6FRUuj0WnWVKi5E4&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPA27,M1]

How many people can you fit into a van? media type="youtube" key="gKzIM42VW_c&hl=en&fs=1" height="344" width="425" that many.

After the first couple of people, the comfort level experienced by each passenger goes down significantly, and the overall efficiency of the van diminishes with each additional person (any safety features become worthless, handling capabilities greatly decreased).

Test your knowledge! refer to the graph below. calculate the opportunity cost of increasing the number of bullet trains from three to five. compare this to the estimated opportunity cost of increasing bullet trains from five to seven. find the difference between these to opportunity costs.



answer: 1space mission; ~2 space mission;the opportunity cost of the second pair was greater by about one space mission.