Answer to Question #95652 in Microeconomics for Kyle

Question

Imagine that you are overseer on a small island that only produces two goods: cattle
and wheat. About a quarter of the land is not fertile enough for growing wheat, so this
is where cattle are grazed. What would happen (i.e., where would you move on the
production possibility frontier) if you tried to produce more and more wheat, extending
you planting to less fertile soil? Support your answer with a graph.

Answer 1

Under the law of increasing opportunity cost, as you plant more and more of your acreage in wheat, you would move into some of the rocky, less fertile land, and, consequently, wheat yield on the additional acreage would fall. If you try to plant the entire island with wheat, you would find that some rocky, less fertile acreage would yield virtually no extra wheat. It would, however, have been great for cattle grazing - a large loss.

Thus, the opportunity cost of using that marginal land for wheat rather than cattle grazing would be high.

The law of increasing opportunity cost occurs because resources are not homogeneous and are not equally adaptable for producing cattel and wheat.

The opportunity cost of each 10 bushels of wheat in terms of forgone cattle is measured by the vertical distances. Moving from point A to point F, the opportunity cost of wheat in terms of forgone cattle rises.