Would you ever consider opening a restaurant? Why or why not?
2 answers:
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Answer: BOWED OUT SO THAT FOR EVERY ADDITIONAL UNIT OF A GOOD GIVEN UP, YOU GET FEWER AND FEWER UNITS OF THE OTHER GOOD
Explanation:
The increasing marginal opportunity cost theory speaks of the additional cost that a company incurs for producing an additional good. At first more costs such as more raw materials and labour lead to more goods but it gets to a point where additional costs lead to less goods due to factors like redundancy i.e too many people doing the same thing.
The production possibility curve therefore measures the additional cost of production using the same resources by piting 2 goods against each other and checking what happens as one is continually given up for the other.
It is for this reason that it is bowed out because it shows that the more you give up one, the less of the other you receive.
It doesn't mean you don't gain the other good, you do but just less of it.
I have attached an example for you.
From the graph you see that giving up 25 units of food (100 -75) at point C gave 100 units of clothing.
But when a further 25 units of food were given up at point D, only 50 additional units of clothing was acquired.
This shows that you gain fewer of one good as you give up the other.
