Explain why is production possibility frontier concave.
OR
Explain the central problem "how to produce."
Explain why is production possibility frontier concave.
OR
Explain the central problem "how to produce."
Production Possibility Frontier (PPF) is a downward sloping, concave curve. Concavity shows increasing Marginal Rate of Transformation (MRT) as more quantity of one good is produced by reducing quantity of the other good. This behaviour of the MRT is based on the assumption that no resource is equally efficient in production of all the goods. As more of one good is produced, less and less efficient resources have to be transferred from the production of the other good which raises marginal cost i.e. MRT.
OR
'How to produce' is the problem of choosing the technique of production. Techniques are broadly dassified into capital intensive and labour intensive. The problem is to use capital intensive technique in which more of capital goods like machines, etc. are used, or to use labour intensive technique in which more of labour is used.
Production Possibility Frontier (PPF) is a downward sloping, concave curve. Concavity shows increasing Marginal Rate of Transformation (MRT) as more quantity of one good is produced by reducing quantity of the other good. This behaviour of the MRT is based on the assumption that no resource is equally efficient in production of all the goods. As more of one good is produced, less and less efficient resources have to be transferred from the production of the other good which raises marginal cost i.e. MRT.
OR
'How to produce' is the problem of choosing the technique of production. Techniques are broadly dassified into capital intensive and labour intensive. The problem is to use capital intensive technique in which more of capital goods like machines, etc. are used, or to use labour intensive technique in which more of labour is used.
