Question

Suppose that workers in a country can produce either cars or food, and that all inputs are equally well-suited to the production of both goods, so that opportunity costs are constant.
The production possibilities frontier will be ____ . In the real world, it is unlikely that all resources will be perfectly substitutable in making these goods. Thus the production possibilities frontier will be ___. This means that every time the country decides to shift production from cheese to cars, the opportunity cost of the additional car will be ___ than the last.

Answer 1

Answer: a straight line;

convex(a curve that is bowed outward); and higher.

Explanation:

When the employees in a country can produce cars or food, and all the inputs are equally well-suited to the production of both goods, the opportunity costs will be constant and the production possibilities frontier will be a straight line.

This will be unlikely in the real world due to the fact that opportunity cost rises when the production level is shifted from one particular good to another, thereby making the production possibilities frontier convex.

Therefore, when the country switches its production from cheese to cars, this will result in the the opportunity cost of the additional car to be higher than the last car that was manufactured.

Note that opportunity cost as used in the above explanation is what one forgoe in order to get another thing e.g. Sometimes we might reduce good A to get more of good B due to limited resources.