Question

Giving reason comment on the shape of Production Possibilities curve based on the following schedule :

Good X (units)	Good Y (units)
0	10
1	9
2	7
3	4
4	0

 

Answer 1

Marginal opportunity cost is as follows

Good X (Units	Good Y (Units)	MOC = `"ΔY"/"ΔX"`
0	10	-
1	9	1/1 = 1
2	7	2/1 = 2
3	4	3/1 = 3
4	0	4/1 = 4

The above schedule clearly states that the production of Good-X increases from Unit 1 to
 Unit 2, and correspondingly, the units of Good-Y forgone is 2. While the production of
Good-X increases from Unit 2 to Unit 3, 3 units of Good Y are forgone. With each additional
unit of production of Good-X, the amount of Good-Y to be forgone increases. So, because of
increasing opportunity cost, the production possibility curve (PPC) is concave to the origin.