When a production possibilities frontier (PPF) is bowed outward, the opportunity cost of producing an additional unit of a good increases as more of that good is produced. This occurs because resources are not perfectly adaptable to the production of both goods, so reallocating resources to produce more of one good results in increasingly greater sacrifices of the other good. This concept is known as the law of increasing opportunity costs.
Explanation
- The bowed outward shape of the PPF reflects that as production shifts toward one good, the resources that are less efficient in producing that good must be used, raising the opportunity cost.
- Initially, when producing small quantities of both goods, resources are used efficiently. But increasing the production of one good means giving up increasingly larger amounts of the other good.
- This increasing trade-off is why the PPF is curved outward rather than a straight line, which would indicate constant opportunity costs.
Therefore, with a bowed-out PPF, the opportunity cost of producing an additional unit of a good rises as production of that good increases.
