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Assume there are only two goods produced in the economy (having fixed amount of resources and technology), Good A and Good B. The quantities of Good A and Good B which can be produced using given resources are plotted on a graph with good A on x-axis and Good B on y-axis. Different combinations of A and B when plotted and joined gave a downward sloping concave curve. One point, Point F lies above the curve. Point E lies below the curve. |
Why is the obtained curve concave to origin? |
Increasing marginal rate of substitution Increasing marginal rate of transformation Diminishing marginal utility Decreasing marginal rate of transformation |
Increasing marginal rate of transformation |
Marginal rate of transformation is the rate at which output of Good-Y is to be sacrificed for every additional unit of Good-x. It refers to the slope of of PPC. Increasing marginal rate of transformation causes the shape of the curve to be concave to the origin.
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