Question

Why is a production possibilities frontier typically drawn as a curve, rather than a straight line?

Short answer

A production possibilities frontier (PPF) is typically drawn as a curve rather than a straight line due to increasing marginal opportunity costs. This curved shape reflects the real-world phenomena of variable opportunity costs and resource allocation efficiencies, which are essential to understanding economic trade-offs and production decisions. This is a result of resources being shifted from the production of one good to another, leading to decreasing productivity in the new production.

Step-by-step solution

Define Production Possibilities Frontier (PPF)

A production possibilities frontier illustrates the possible combinations of two goods that can be produced in an economy when resources are fully and efficiently utilized, given the available technology and resources.

Understand Opportunity Cost

Opportunity cost is the value of the next best alternative that is foregone when a choice is made. It represents the cost of not choosing the next best option and serves as an important concept in economics. In the context of a PPF, opportunity cost is the amount of one good that must be given up to produce an additional unit of another good.

Explain Constants and the Straight Line Assumption

If the opportunity cost of producing two goods remains constant, the PPF would be a straight line. In this case, the opportunity cost of producing one good does not change with the level of production for both goods.

Introduce Increasing Marginal Opportunity Costs

In reality, the opportunity cost of producing goods usually increases as more of a particular good is produced. This is due to varying efficiencies of resource allocation and the law of diminishing marginal returns. As resources are shifted from the production of one good to another, their productivity will decrease in the new production because these resources are not specialized for the new production. This leads to an increase in the opportunity cost of switching to the production of the other good.

Explain the Reason behind the Curved PPF

The typical curved shape of a PPF is due to increasing marginal opportunity costs. Since producing goods usually incurs increasing opportunity costs, efficiency losses (due to resource reallocation) will gradually increase. This causes the PPF to have a bowed-out shape, or a downward-sloping curve, due to the increasing slope as one good is produced at the expense of the other. This shape reflects the reality of resource allocation in an economy, taking into account the changing opportunity costs of production. In conclusion, the production possibilities frontier is typically drawn as a curve rather than a straight line because it represents the increasing marginal opportunity costs of production. The curved shape captures the real-world phenomena of variable opportunity costs and resource allocation efficiencies, which are essential to understanding economic trade-offs and production decisions.