Question

Why is the shape of the production possibilities frontier (PPF) often curved instead of straight? The productive efficiency of an economy decreases as it moves from left to right along the PPF. Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for. Because the production possibilities frontier is based on the productive capabilites, and of a nation overall, rather than the productive capacity of an individual. To take a potential sunk cost into account, the PPF is curved to distribute the burden of the sunk cost based on allocative effieciency.

Answer 1

Answer:

The correct answer is: Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for.

Explanation:

A production possibility curve shows the different combinations of two goods that can be produced using all the given resources. Since resources are scarce, to increase the production of one good we need to decrease production of the other.  

But resources are specialized and cannot be perfectly substituted between their two uses. So as we go on increasing production of one good the opportunity cost of sacrificing its alternative goes on increasing.

Because of this increasing opportunity cost the shape of the frontier is downward sloping, bent outwards and concave to the origin.