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Answered Same Day May 05, 2020 BUS102


Soma answered on May 09 2020
138 Votes
The production possibility frontier shows the maximum output combinations of bicycle and cars when all the resources are used efficiently. The PPF is concave to the origin that shows an increase in the production of car output is associated with a fall in the production of bicycle output. While creating the PPF we have made the following assumption:
1. The economy is cu
ently producing only two goods: cars and bicycles
2. The resources that are used to produce the goods are fixed in quantity. There will be no change in resources.
3. Technology to produce cars and bicycle will not change. the economy has a fixed technology at least at a given point of time.
4. There is no waste of resources. Cars and bicycles are produced in a technical efficient way.
The concave shape of car- bicycle PPF states that every additional unit increase in car production is associated with more and more of sacrifice of bicycle production. The underlying economic principle of concave production possibility frontier is increasing opportunity cost. (Tucker, 2010)
The point 4000 bicycles and 20,000 cars lie outside the PPF. Any output combination that stays outside the PPF is impossible point because that cannot be achieved with the available resources and technology.
The output combination can only be produced if the PPF shifts outward. The PPF can shift outward if there is economic growth, improvement in technology, discovery of any new raw materials or increase in the labour force. Any change of one or more of these factors can cause the PPF to shift outwards reach to this point.
Moreover, if there is an improvement of technology in car production sector or the resources move from bicycle sector to car production sector then the...

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