Opportunity Cost on the Production Possibility Curve

Steps:

• Locate points R and S on the PPC, where R produces more of good Y and less of good X than S.
• Moving from R to S increases good X production by amount X₁ along the X-axis.
• This shift decreases good Y production by amount Y₂ along the Y-axis.
• Calculate opportunity cost as the good Y forgone (Y₂) for the additional good X gained.

Why D is correct:

• Opportunity cost is defined as the quantity of one good sacrificed to produce an additional unit of another, so Y₂ represents the Y units lost moving from R to S.

Why the others are wrong:

• A. OX: Measures total X production at S, not the forgone Y.
• B. OY₂: Represents total Y at R, not the specific decrease.
• C. X₁: Indicates the gain in X, not the cost in Y.

Final answer: D