Relation between Marginal Opportunity Cost and Production Possibility Curve

Production possibility curve (PPC) is a graphical representation of the combination of two goods that can be produced with the given resources and technology. On the other hand, marginal opportunity cost (MOC) is the cost of producing one more unit of a good in terms of the other good that is foregone.

The relation between marginal opportunity cost and production possibility curve can be explained as follows:

1. PPC shows the trade-off between two goods

The production possibility curve shows the trade-off between two goods that can be produced with the given resources. The slope of the PPC represents the opportunity cost of producing one good in terms of the other good. As we move along the PPC, the opportunity cost of producing one good increases, and the opportunity cost of producing the other good decreases.

2. MOC measures the opportunity cost

Marginal opportunity cost measures the opportunity cost of producing one more unit of a good in terms of the other good that is foregone. It is calculated as the change in the quantity of one good divided by the change in the quantity of the other good.

3. MOC increases along the PPC

As we move along the production possibility curve, the marginal opportunity cost of producing one good in terms of the other good increases. This is because the resources are not equally efficient in producing both goods. As we produce more of one good, we need to sacrifice more of the other good, which increases the opportunity cost.

4. PPC is concave to the origin

The production possibility curve is concave to the origin because of increasing marginal opportunity cost. As we produce more of one good and move along the PPC, the slope of the PPC increases, indicating that the opportunity cost of producing one good in terms of the other good is increasing.

In conclusion, the marginal opportunity cost and production possibility curve are closely related. The PPC shows the trade-off between two goods, and the MOC measures the opportunity cost of producing one more unit of a good in terms of the other good that is foregone. The MOC increases along the PPC, and the PPC is concave to the origin because of increasing MOC.