Illustrate the PPC Why does the PPC have a bowed shape Expla

Illustrate the PPC. Why does the PPC have a bowed shape? Explain.

Solution

PPC, also known as the production possibilities curve is a curve showing the maximum output which can be produced using different combinations of inputs.

It is generally a concave-shaped curve, or in simpler words, it is bowed outwards reflecting the law of increasing opportunity costs. It states that as the production of one good increases, opportunity costs of producing that good also increases. This makes the marginal rate of substitution between the inputs higher, and thus the PPC has to bow outwards.