Figure 3-2
-In Figure 3-2, the production possibilities frontier has a bowed-out shape because of the law of
A)decreasing costs.
B)increasing costs.
C)demand.
D)comparative advantage.

Question

Figure 3-2 
-In Figure 3-2, the production possibilities frontier has a bowed-out shape because of the law of
A)decreasing costs. 
B)increasing costs. 
C)demand. 
D)comparative advantage.

Quizplus · Accepted Answer

The bowed-out shape of the production possibilities frontier indicates increasing costs. As the production moves from point A to point B, the opportunity cost of producing one good increases as more and more of it is produced. This is due to the fact that resources are not perfectly adaptable to the production of both goods, so the production of one good comes at the cost of producing less of the other. The law of increasing costs states that as production of one good increases, the opportunity cost of producing additional units of that good increases.

Figure 3-2 -In Figure 3-2, the Production Possibilities Frontier Has a Bowed-Out