marginal opportunity cost or marginal rate of transformation (moc or mrt)

economics

1. By : Dhirendra Chauhan Marginal Opportunity Cost “Marginal Rate of Transformation”

2. “MOC refers to the number of units of a commodity sacrificed to gain one additional unit of another commodity” Marginal Opportunity Cost “ it is the ration of additional loss of output( Δ Y ) to additional gain of output( Δ X ) when some resources are shifted from the production of Y commodity to X Commodity ”

3. “It is the total loss of Output” OR The total opportunity cost of production of a commodity refers to the total cost which the producer has to sacrifice in terms of the next best alternative which could be produced out of given resources and technology in order to produce the total units of the given commodity . Total Opportunity Cost

4. “MOC or MRT is also know as a slope of PPC” MRT = Δ Y Δ X

5. Diagram X Commodity A B M N X Y x 1 x 2 y 1 y 2 Y Commodity x y O K Slope of Δ KMN = Perpendicular Base KM KN = = Y 1 Y 2 X 1 X 2 (-) Δ Y Δ X MRT =

6. Properties of PPC on MOC PPC slopes downwards PPC slopes downwards from left to right because from the given resources , production of both the goods cannot be increased. More of good X can be produced only by producing less of good Y. it is because resounces are fixed 2. PPC is concave to the point of origin A concave downward sloping curve has an increasing slope. i.e.- increasing marginal opportunity coast or increasing MRT

7. Types of MOC 1. Increasing MOC X Commodity A B X Y Y Commodity O Combinations A B C D E X Commodity 1 2 3 4 Y Commodity 100 90 70 40 MOC = Δ Y/ Δ X - 10÷1 = 10 20÷1 = 20 30÷1 = 30 40÷1 = 40 Concave PPC 1 2 4 3 100 80 60 40 20

8. Types of MOC 2. Deceasing MOC X Commodity A B X Y Y Commodity O Combinations A B C D E X Commodity 1 2 3 4 Y Commodity 100 60 30 10 MOC = Δ Y/ Δ X - 40÷1 = 40 30÷1 = 30 20÷1 = 20 10÷1 = 10 Convex PPC 1 2 4 3 100 80 60 40 20

9. Types of MOC 3. “Constant MOC” X Commodity A B X Y Y Commodity O Combinations A B C D E F X Commodity 1 2 3 4 5 Y Commodity 100 80 60 40 20 MOC = Δ Y/ Δ X - 20÷1 = 20 20÷1 = 20 20÷1 = 20 20÷1 = 20 20÷1 = 20 Straight Line PPC 1 2 5 4 3 100 80 60 40 20

10. Explanation PPC MOC Concave Convex Straight Line

11. Thank You