Question

Why is Production Possibilities Curve concave? Explain

Answer 1

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.