What is PPC? Why is PPC downward sloping? Why is PPC Concave What is Opportunity Cost? What is Marginal Opportunity Cost

Every economy be it rich or poor, developed or underdeveloped faces these three Problems:

(i) What to Produce?

(ii) How to Produce?

(iii) For Whom to Produce?

Based on the above questions we will find out whether a country should Produce capital goods or consumer goods. The goods country is producing should be using labour intensive or Capital intensive techinque of production. As resources are scarce so, whether the goods should be produced for the rich or the poor?

The questions to the answer is based on the kind of economies that the country operates under.

Above questions to an extent can be answered with Production Possibility Curve (PPC).

But before that, What is PPC?

PPC also known as Transformation Curve or Transformation Line is the Cuve showing the various combination of two goods that can be produced using the scarce resources given that the resources are fully and efficiently utilized and the technique of production is constant.

Graphical representation of PPC is given below: 

There are two characteristics of PPC:

(i) It Slopes downward from left to right

(ii) It is concave at the point of origin

Why PPC slopes downward?

PPC slopes downward because with the given resources increase in output of Good-2 is only possible after reducing the production of Good-1. Slope of PPC is also known as Marginal rate of Transformation or Marginal Opportunity Cost.

Why PPC is Concave to Origin?

Curve is concave to the origin because it has an increasing slope as we move along this Curve from left to right as more and more resources are shifted from Opportunity-1 to Opportunity-2, thus, Marginal Opportunity Cost Rises.

Pointers (FYI):

Opportunity Cost: It is the value factor in its next best alternative use. Or, it is the cost (loss of output) as resources are shifted from Use-1 to Use-2.

Marginal Opportunity Cost: It is the rate at which output of Good-Y is to be sacrificed for every additional unit of Good-X.