Why is Production Possibilities Curve concave? Explain
The production possibility curve is concave to the point of origin because to produce each additional unit of Good X, more units of Good Y will have to be sacrificed than before. The opportunity cost of producing every additional unit of Good X tends to increase in terms of the loss of production of Good Y.
Let us consider capital goods and consumer goods to represent PPC in the diagram. If 1 unit
of the capital good and 48 units of consumer goods are produced at the initial production point
B, then to produce one additional unit of the capital good, 4 units of consumer goods must be
sacrificed. The opportunity cost of one additional capital good is 4 units of consumer goods
at Point C. Likewise, it moves on to Point D by sacrificing 9 units of consumer goods to produce one more unit of capital good. The opportunity cost increases as the PPC moves
down from Point C to D. Hence, PPC has a concave shape.