Question

Why is the production possibilites curve concave? Explain.

Answer 1

Production possibility curve (PPC) is concave to the origin because marginal opportunity cost $\left(\frac{\text{Loss of output of Y}}{\text{Gain of output of X}}\right)$ of shifting resources from commodity Y to commodity X tends to rise. This happens because resources are use-specific. As these are withdrawn from a more specialised use and allocated to a less specialised use, the loss of output tends to be higher than the gain of output. Accordingly, the ratio $\left(\frac{\text{Loss of output of Y}}{\text{Gain of output of X}}\right)$ tends to rise. As the slope of PPC is determined by the marginal opportunity cost and is rising, the PPC is concave to the origin.