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Question
Giving reason comment on the shape of production possibilities curve based on the following schedule:
| Good X (units) | Good Y (units) |
| 0 | 8 |
| 1 | 6 |
| 2 | 4 |
| 3 | 2 |
| 4 | 0 |
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Solution
Marginal opportunity cost:
| Good X (units) | Good Y (units) | MOC = `"ΔY"/"ΔX"` |
| 0 | 8 | - |
| 1 | 6 | 2/1 = 2 |
| 2 | 4 | 2/1 = 2 |
| 3 | 2 | 2/1 = 2 |
| 4 | 0 | 2/1 = 2 |
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. With each additional unit of production of Good-X, the amount of Good-Y to be forgone is constant (2). So, because of constant opportunity cost, the production possibility curve (PPC) is a downward sloping straight line.
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