Question

explain the problem of opportunity cost with example .

Answer 1

Reallocating scarce resources from one product to another involves an opportunity cost

If we increase our output of consumer goods (i.e. moving along the PPF from point A to point B) then fewer resources are available to produce capital goods

If the law of diminishing returns holds true then the opportunity cost of expanding output of X measured in terms of lost units of Y is increasing.

This is an explanation of the law of diminishing returns and it occurs because not all factor inputs are equally suited to producing items