Answer to Question #88898 in Microeconomics for Phindile

Question

What could be the cause of a straight line graph in a production possibility frontier?

Answer 1

A production possibility frontier conceivably can have three shapes – either a concave curve, a convex curve or a straight line. The shape of each kind of PPF represents the feature of opportunity costs involved in diverting the resources between production of two goods and that’s why the slope of PPF is often called the marginal rate of transformation of one good to another. The concave shape of the PPF represents the increasing opportunity costs and convex shape of the PPF shows the decreasing opportunity costs when the economies of scale are realized.

 

As far as the straight-line shape of the PPF is concerned, it represents the constant opportunity cost of transformation. In other words, the marginal rate of transformation, as mentioned above in such case is constant. The marginal rate of transformation is also called the slope of the PPF and in the given case the slope is constant. Furthermore, it also indicates that resources can be transferred between the production of two goods without any added costs and no specialization of resources is involved.