Multiple Choice
What does increasing marginal opportunity costs mean in the context of a production possibilities frontier (PPF)?
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2. Introductory Economic Models
PPF - Increasing Marginal Opportunity Costs and Allocative Efficiency
Multiple Choice
In the context of the production possibilities frontier (PPF), what does 'increasing marginal opportunity costs' mean?
A
The PPF is a straight line, indicating equal trade-offs between goods.
B
The opportunity cost of producing a good remains constant as more of it is produced.
C
Producing each additional unit of a good requires giving up increasingly larger amounts of the other good.
D
Resources are perfectly adaptable to the production of all goods.
Verified step by step guidance1
Understand that the Production Possibilities Frontier (PPF) represents the maximum combinations of two goods that an economy can produce given its resources and technology.
Recognize that 'increasing marginal opportunity costs' means that as you produce more of one good, the opportunity cost of producing an additional unit of that good increases.
This happens because resources are not perfectly adaptable; some resources are better suited for producing one good than the other, so shifting production leads to less efficient use of resources.
Graphically, increasing marginal opportunity costs are shown by a PPF that is concave (bowed out) from the origin, reflecting that the slope (opportunity cost) becomes steeper as production of one good increases.
Contrast this with a straight-line PPF, which indicates constant opportunity costs, meaning resources are perfectly adaptable and the trade-off between goods remains the same regardless of production levels.
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