Question

A country produces two goods: A and B. Its production possibilities are shown in the following table. Calculate the values of MRT. Construct a PPF, with the help of given possibilities and discuss the shape of PPF.

Possibilities	A	B	C	D	E	F
Good A	0	1	2	3	4	5
Good B	100	95	85	70	50	25

Answer 1

\[ \text{MRT}=\frac{\text{Loss of Good B}}{\text{Gain of Good A}} \]

Production Possibility Schedule

 

Possibilities	Good A (Units)	Good B (Units)	MRT
A	0	100	–
B	1	95	5
C	2	85	10
D	3	70	15
E	4	50	20
F	5	25	25

Production Possibility Frontier (PPF)

Shape of PPF:

1. The PPF is downward sloping because more of Good A can be produced only by sacrificing some units of Good B.
2. The PPF is concave to the origin due to increasing Marginal Rate of Transformation (MRT).
3. As production of Good A increases, MRT increases from 5 to 25 units of Good B.