The shape of an ideal PPC is due to which of the followinga) Increasin...
Marginal ooportunity cost is defined as the amount of one good that needs to be given up in order to increase the production of the other good by one unit. It is calculated as Units of good one sacrificed/ units of the other good obtained.
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The shape of an ideal PPC is due to which of the followinga) Increasin...
The correct answer is option 'B': Increasing Marginal Opportunity Cost.
Explanation:
The Production Possibility Curve (PPC) shows the different combinations of two goods that an economy can produce given its resources and technology. It represents the trade-off between producing one good over another.
- Increasing Marginal Opportunity Cost:
The shape of an ideal PPC is due to increasing marginal opportunity cost. This means that as an economy produces more of one good, it must give up increasing amounts of the other good. This is because resources are not equally suited for the production of both goods. To produce more of one good, the economy must reallocate resources that were previously better suited for the production of the other good. As a result, the opportunity cost of producing an additional unit of one good increases.
- Example:
Let's take the example of an economy that can produce two goods: computers and cars. Initially, the economy is producing only computers, and as it starts to produce cars, it can easily reallocate resources that were previously used for computer production. At this stage, the opportunity cost of producing cars is low because the economy can use its least productive resources for car production.
However, as the economy continues to produce more cars, it starts to reallocate resources that were previously better suited for computer production. This means that to produce an additional car, the economy must give up producing more computers. The opportunity cost of producing cars increases because the economy is now using its most productive resources for car production.
- Shape of the PPC:
As a result of increasing marginal opportunity cost, the PPC is concave or bowed outwards. This is because the slope of the PPC becomes steeper as we move from one end to another. The curve represents the diminishing marginal rate of transformation, which indicates the decreasing ability of an economy to produce more of one good without giving up increasing amounts of the other good.
In conclusion, the shape of an ideal PPC is due to increasing marginal opportunity cost. As an economy produces more of one good, the opportunity cost of producing additional units of that good increases. This results in a concave PPC, reflecting the trade-off between producing different goods.
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