Why does the PDF have a bowed-out shape

Why does the PDF have a bowed-out shape - X is 3 units of...

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The bowed-out shape of the PPF is due to the increasing opportunity cost. Suppose that the economy is initially at point C, producing 2 units of good X and 13 units of good Y . Consider what happens when the economy desires another unit of good X and so changes its production from point C on the PPF to point D. The opportunity cost of the additional unit of good X is the 2 units of good Y (13 units of Y - 11 units of Y ) that are forgone in moving from point C to point D. Now, suppose that the economy desires yet another unit of good X and so changes its production from point D on the PPF to point E. The opportunity cost of this additional unit of good
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Unformatted text preview: X is 3 units of good Y (11 units of Y- 8 units of Y ). In this example, the opportunity cost of producing 1 more unit of good X increases as more of good X is produced. The reason is that some of the resources used to produce good Y are not as well suited to producing good X . Consequently, as more and more of the economy's resources are devoted to producing good X , the opportunity cost of good X , as measured in units of good Y forgone, will be increasing. This bowed-out shape is also referred to as the law of increasing opportunity cost . 3 1 2 1...
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This note was uploaded on 10/14/2011 for the course ECON 2023 taught by Professor Unknown during the Fall '05 term at Arkansas.

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