Question

Help please : Why do the PPF bow outward and what does that imply about the relationship between opportunity cost and the quantity produced?

Answer 1

PPF is bowed outwards, hence it is concave in shape

It is bcoz MRTS: marginal return to technical substitution rises, as we move down along PPF

Thus there exists diminishing returns to scale

as MRTSxy = MCx/MCy

Thus MRTS is measure of relative MC of two goods.

So increase in X output will raise its MC, & decrease output of Y & so MCy falls.

2) specialized (heterogeneous) inputs

If some inputs were more suited for X production , than for Y.

Then rise in X production, would need using less suitable inputs in its production.

So MCx rise, MCy fall.

So MRTS rise.

thus there is direct relationship between the opportunity cost of production & output level

As we produce more of one good, then it's opportunity cost of production in terms of other rises