“PPC is concave to the origin”.

Which of the following options explain the reason behind the same?

Both 1 and 3

The correct answer is option 4: Both 1 and 3

The marginal rate of transformation (MRT) refers to the number of units of good Y that will be foregone to produce an extra unit of good X while keeping the factors of production and technology constant. Due to increasing marginal rate of transformation the PPC becomes concave to the origin. Marginal rate of transformation is also known as marginal opportunity cost.

The Production Possibility Curve (PPC) is concave to the origin because of the increasing marginal opportunity cost or the rising marginal rate of transformation (MRT). Let’s analyze the correct reasons:

1. Marginal opportunity cost tends to rise – This means that as more of one good is produced, increasing amounts of the other good must be sacrificed due to the inefficient reallocation of resources. Resources are not equally efficient in producing all goods, leading to higher opportunity costs as production shifts.

2. Marginal rate of transformation rises – The MRT measures the rate at which one good must be sacrificed to produce more of another good. As production of one good increases, the MRT increases, making the PPC concave.