Why ppf curve is concave

The production possibility curve is concave to the point of origin because to produce each additional unit of Good X, more units of Good Y will have to be sacrificed than before. The opportunity cost of producing every additional unit of Good X tends to increase in terms of the loss of production of Good Y. Let us consider capital goods and consumer goods to represent PPC in the diagram. If 1 unit of the capital good and 48 units of consumer goods are produced at the initial production point B, then to produce one additional unit of the capital good, 4 units of consumer goods must be sacrificed.

The opportunity cost of one additional capital good is 4 units of consumer goods at Point C. Likewise, it moves on to Point D by sacrificing 9 units of consumer goods to produce one more unit of capital good. Hence, PPC has a concave shape. Question Papers. If the shape of the PPF curve is a straight-line, the opportunity cost is constant as production of different goods is changing.

PPC is concave shaped because of increasing marginal rate of transformation. It implies that more and more units of commodity sacrificed to gain an additional unit of another commodity. PPC is convex shaped because of decreasing marginal rate of transformation.

Since resources are use specific, therefore every time when one more unit of a product X is produced more units of product Y are sacrificed that results in increasing marginal opportunity cost which leads to the concave shape of the PPC.

The production possibilities curve PPC is a graph that shows all of the different combinations of output that can be produced given current resources and technology. In other words, production possibility curve can be defined as a graph that represents different combinations of quantities of two goods that can be produced by an economy under the condition of limited available resources.

In business, the Production Possibility Curve PPC is applied to evaluate the performance of a manufacturing system when two commodities are manufactured together. When a firm diverts its resources to produce commodity B, the production of commodity A will reduce. There are 3 types of production possibility curve which are straight-line sloping down, concave and convex curve. Because the production possibilities curve for Plant 1 is linear, we can compute the slope between any two points on the curve and get the same result.

The average PPC conversion rate across all industries is about 3. And it is at about 0. This conversion rate, of course, varies with each industry. Use this equation to determine your ideal budget. Begin typing your search term above and press enter to search. What is the shape of PPC? This indicates an Increasing Opportunity Cost, meaning that the more you produce Item A, the Opportunity Cost of Item B increases, whereas in the linear graph it was constant.

How does PPF illustrate scarcity? The addition of the PPF curve thus illustrates scarcity by dividing production space into attainable and unattainable levels of production. However, not just any PPF curve illustrates scarcity. For this PPF curve, the production of more of both goods is attained by moving upward along the frontier. Why indifference curve is convex? Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution.

The marginal rate of substitution goes down as the consumer gives up one good for another, so it is convex to the origin. What do you mean by indifference curve? Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

Why are some PPC graphs curved? PPC curve is outward bowed or concave to origin due to 'Law of increasing opportunity cost'.