Answer to Question 1
E
Answer to Question 2
The bowed outward PPF reflects increasing opportunity costs. The opportunity cost increases as we produce more of a good because resources are not equally productive in all activities. For example, people with several years of experience working for Sony are good at producing DVDs, but not very good at making pizza. So if we want more pizza and move some of these workers from Sony to Domino's, we get a relatively large decrease in the quantity of DVDs per one additional pizza produced. Of course, first we try to move those workers who have less experience with Sony and who may have some skills to produce pizza. But if we want to produce even more pizza, we eventually will have to move some more experienced Sony workers to Domino's, where they might be very unproductive and therefore the quantity of DVDs that we will give up to produce an additional pizza, which is the opportunity cost of producing pizza, will increase.
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