Author Question: Why does the PPF bow outward and what does that imply about the relationship between opportunity ... (Read 16 times)

james9437 · **on:** Jun 29, 2018

Why does the PPF bow outward and what does that imply about the relationship between opportunity cost and the quantity produced?

What will be an ideal response?

Question 2

What does marginal cost measure?

What will be an ideal response?

mistyjohnson · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Some resources are better suited to produce one type of good or service, like pizza. Other resources are better suited to produce other goods or services, like DVDs. If society allocates resources wisely, it will use each resource to produce the kind of output for which it is best suited. Consider a PPF with pizza measured on the x-axis and DVDs measured on the y-axis. A small increase in pizza output when pizza production is relatively low requires only a small increase in the use of those resources still good at making pizza and not good at making DVDs. This yields a small decrease in DVD production for a large increase in pizza production, creating a relatively low opportunity cost reflected in the gentle slope of the PPF over this range of output. However, the same small increase in pizza output when pizza production is relatively large will require society to devote to pizza production those resources that are less suited to making pizza and more suited to making DVDs. This reallocation of resources yields a relatively small increase in pizza output for a large decrease in DVD output, creating a relatively high opportunity cost reflected in the steep slope of the PPF over this range of output. The opportunity cost of pizza production increases with the quantity of pizza produced as the slope of the PPF becomes ever steeper. This effect creates the bowed out effect (the concavity of the PPF function) and means that as more of a good is produced, the opportunity cost of producing additional units increases.

Answer to Question 2

Marginal cost is the increase in total cost, which results from producing one more unit of output. Marginal costs reflect changes in variable costs.