The correct option is: Option 1: Concave
The production possibility curve (PPC) is a graphical representation that shows the maximum possible combinations of two goods or services that an economy can produce given its available resources and technology. It illustrates the trade-offs an economy faces when allocating resources between the production of different goods.
In the given production possibility schedule, we have quantities of two commodities – Cars and Computers, which can be produced in the economy at different levels:
| Production Possibilities | Cars | Computers |
|---|
| A |
150 |
10 |
| B |
140 |
20 |
| C |
120 |
30 |
| D |
90 |
40 |
Now, let's analyze the production possibilities and understand the opportunity costs associated with each combination:
- As we move from point A to point D along the PPC, we observe a decrease in the production of cars and an increase in the production of computers. This demonstrates the concept of opportunity cost: to produce more computers, the economy must sacrifice the production of cars.
- The marginal rate of transformation (MRT) of cars into computers increases as we move along the PPC. In other words, as we produce more computers and fewer cars, the opportunity cost of producing each additional computer increases. This is because resources that are well-suited for producing cars may not be as efficient when used for producing computers.
- At point A, the economy is producing 150 cars and 10 computers. To produce 10 more computers, the economy must sacrifice 10 cars. However, at point D, to produce 10 more computers, the economy must sacrifice 30 cars. This illustrates increasing opportunity costs.
Based on the increasing opportunity costs observed in the production possibilities, the typical shape of the production possibility curve is concave to the origin. This concave shape indicates that resources are not equally efficient in producing different goods and that as more of one good is produced, the opportunity cost of producing additional units of that good increases.
Therefore, the correct explanation for the shape of the PPC in this scenario is "Concave." Straight line and convex curves do not accurately represent the increasing opportunity costs observed in the production possibilities given.
