Opportunity cost

We know that human wants are unlimited and that resources used to produce the goods and services are limited. This is called scarcity. This has become such a huge problem that firms have to make relevant decisions on what to produce and how to efficiently use their scarce resources. Therefore, we can say that scarce resources have alternative uses. 

For example, a government can decide what to do with a piece of land. They have the two choices, one is to use it for agriculture and the other one is to use it to build a motorway. Both of these choices are good but the government has to decide on one. They construct an production possibility curve (PPC) to view the different possibilities. They see the opportunity cost i.e. they see how much they have to give up from the agriculture idea to get the motorway. A PPC is drawn like this:

Notice that this graph has a curve. This is because one product takes more resources to produce than the other one. If the two of them would take the same resources to produce, then the graph would be a straight line.