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Macroeconomics: Unit 1, Production Possibilities 1 Views
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Transcript
- 00:01
no macro economics Allah shmoop reduction possibilities So you're trying
- 00:07
to strike it rich Start up in the garage Maybe
- 00:10
you're creating a search product that allows consumers to take
- 00:13
fewer clicks Teo you know access art film images you
- 00:18
rake in the dough and all that All right but
Full Transcript
- 00:21
what do you make Well if you've got a bunch
- 00:23
of sheet metal lying around for free somewhere on your
- 00:27
property and you can have access to it for nothing
- 00:30
Well you could try and just sell It is raw
- 00:32
material But being the innovative entrepreneur that you are you
- 00:35
think you can get more by making something out of
- 00:38
it Raw sheet metal is a cheap commodity which is
- 00:41
sold by hundreds of vendors and carries very low profit
- 00:45
margins So you'd have to sell mountains of it Teo
- 00:48
really make bank You know that everyone loves those slinky
- 00:52
things You know that you khun stretch and wave and
- 00:54
well they're pretty straightforward to make With very little effort
- 00:57
you could start the shmoop line of sling keys or
- 01:00
the you know Schlink ease if you will On the
- 01:03
other hand you could also use your metal to make
- 01:05
the super awesome robot of the future fellas a producer
- 01:09
of goods You have to think about how you're going
- 01:11
to allocate your resource Is the metal in the production
- 01:15
of Schlink ease and robots Well the key goal here
- 01:18
is to add as much value as possible so that
- 01:21
you create a product that is difficult for competition to
- 01:24
replicate and one that consumers want You know that they'll
- 01:28
actually pay up for it by Rausch Middle Well you
- 01:32
start out exclusively by making Schlink ease but realize that
- 01:36
well maybe you want to start making some robots as
- 01:38
well If you had unlimited meddled male maybe you could
- 01:41
do both But alas scarcity The old folk continues to
- 01:45
lurk in the shadows You have to give up some
- 01:48
metal from your slinky production to make your robots so
- 01:52
you'll find the flattest and sturdiest faces and leave the
- 01:54
soft pieces that are easy to curl For The Schlink
- 01:57
ease however the more robots you then choose to make
- 02:02
while the harder it is to make them with less
- 02:04
specialized material So you have to give up the production
- 02:08
of a lot of Schlink ease to make only a
- 02:10
couple of robot While this whole thing we're illustrating is
- 02:13
the law of increasing opportunity costs So how much of
- 02:18
each product should you produce Well let's say you have
- 02:21
to pay three bucks a pound of metal and you
- 02:23
buy 10 pounds for a total of $30 With your
- 02:26
10 pounds of metal you can make five robots and
- 02:29
sell them for $10 a body Or you can use
- 02:33
that same metal to make 25 Schlink ease and sell
- 02:36
them for $2 per slinky Well you could make either
- 02:40
only robots and generate 50 bucks in revenue for $20
- 02:44
in profit Or you could make on Leash Winkie's and
- 02:48
generate $50 in revenue or $20 in profit either equal
- 02:53
But since you know the production's possibilities curve is bowed
- 02:57
and outwards He had shaped like that You know you
- 03:00
could do better by well for example making 20 Schlink
- 03:03
ease into robots like out here on the curb Since
- 03:06
that combination lies on your production possibilities curve This combination
- 03:11
would then generate $60 in revenue and $30 in notional
- 03:16
profit Even the robot's think this is a good idea
- 03:20
Well mapping all the combinations of Schlink ease and robots
- 03:22
will give you a production Possibilities curves If you put
- 03:25
all the data points out there it kind of creates
- 03:27
that curve The production possibilities curve shows the trade off
- 03:30
between producing two goods with limited resource is by showing
- 03:34
all possible combinations of the quantities produced for each good
- 03:37
Given a set of limited resource is you could make
- 03:39
something easily for relatively low profit margins Like you know
- 03:43
handicrafts are simple Products are or you can invest intellectual
- 03:48
and financial capital to create highly engineered products that yield
- 03:52
much larger margins Well understanding the production's possibilities curve is
- 03:56
important in order to make decisions about allocating Limited resource
- 04:00
is when make key to goods in order to maximize
- 04:03
profits The shape of the curve means that you can
- 04:05
use specialized resource is for each good and initially increased
- 04:09
profits If you're producing a combo of Schlink ease and
- 04:12
robots below the curve well that means that you'd have
- 04:15
some sheet metal left over and could be making mohr
- 04:19
of either one So you're not using your resource is
- 04:22
perfectly efficiently That's why sometimes the curve is called a
- 04:26
frontier because you can continue increasing your production of either
- 04:32
and therefore your revenue right up until your producing right
- 04:35
here on the curb and if you go out of
- 04:37
business while this would be your a final frontier Star
- 04:42
Trek joke But if you're truly and desperately needed to
- 04:45
produce at a combination outside of the curve well your
- 04:48
costs would go up probably dramatically like it's a completely
- 04:52
different thing to make 4,000,000 Schlink ease a month and
- 04:55
four and then your supply becomes a hassle Instead of
- 04:59
continuing to get cheap steel from somewhere like Pittsburgh or
- 05:03
China you might have to negotiate with highly unionized Belgium
- 05:07
with all kinds of costs and shipping and other grief
- 05:10
and no chocolate included with the sheet metal such that
- 05:14
instead of costing a grand per shmoop ton well it'd
- 05:17
cost five grand or worse for your supplies Yeah well
- 05:21
any point outside the curve is a production level that
- 05:23
is essentially unsustainable for more than a brief blip in
- 05:27
time and he kind of regressed back to the curve
- 05:30
One way or another machines can run hot People can
- 05:33
work overtime for a while but eventually machines and people
- 05:36
will start to break As the steel supply runs out
- 05:39
bad things happen Your profit margins So yeah that's the 00:05:42.574 --> [endTime] law of increasing opportunity costs so there
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