Question

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

Good X (units	Good Y (units)
0	30
1	27
2	21
3	12
4	0

 

Answer 1

Marginal opportunity cost is as follows:

Good X (units)	Good Y (units)	MOC = `"ΔY"/"ΔX"`
0	30	-
1	27	3/1 = 3
2	21	6/1 = 6
3	12	9/1 = 9
4	0	12/1 = 12

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 3. While the production of Good  X increases from Unit 2 to Unit 3, 6 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.