Pinnacle Paper Products Inc. can produce books or rolls of paper towels. Exhibit A shows its Production Possibilities Frontier (PPF) using its currently available resources and technology. Use this information to answer questions 1-8 that follow.
1. What is gained by choosing to produce at point B, instead of at point A?
2. What is the opportunity cost of choosing to produce at point B, instead of at point A?
3. What is gained by choosing to produce at point C, instead of at point B?
4. What is the opportunity cost of choosing to produce at point C, instead of at point B?
5. Continue moving point by point down the PPF. What is the pattern of gains as one chooses to move down this PPF from point A to B to C to D and so forth?
6. What is the pattern of opportunity costs as one chooses to move down this PPF from point A to B to C to D and so forth?
7. (a) Does the law of increasing opportunity costs hold for book production at Pinnacle Paper Products?
(b) How do you know?
8. Explain how to determine whether the law of increasing opportunity cost holds for paper towel production at Pinnacle Paper Products.
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