Discuss the differences between the constant opportunity cost and the increasing opportunity cost in terms of...

Discuss the differences between the constant opportunity cost and the increasing opportunity cost in terms of Production Possibilities Curve.Ie.) the shapes of PPC and the main assumption behind these two.

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Expert Solution

Constant opportunity cost is applicable when there are equal resources available for two goods. In such a case, an increase in additional unit of output won't affect the opportunity cost of that good. Productiion possibility curve graphically represents the combinations of goods that can be produced in an economy at a given time. In constant opportunity cost, the PPC will be a straight line i.e., constant even when the output increases.

Increasing opportunity cost is applicable when the resources are not well allocated and an increase in an additional unit of output will increase the opportunity cost of producing another unit of that particular good. In the PPC, increasing opportuity cost will be a concave curve. The opportunity cost increases as we move along the concave curve.

The main assumption between the two curve is that the resources available and techology is fixed and only two goods can be produced.

Rahul Sunny answered 2 months ago

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