Why is the Production Possibility Curve (PPC) or Production Possibility Frontier (PPF) concave? What does increasing opportunity costs mean? When we increase production, why does it seem that we have to sacrifice more and more resources? What are the limitations to this economic model?
In addition, how does this PPC model illustrates the concept of opportunity cost? In what way does it show that resources are limited? Where are the points that show under-utilization of resources, full utilization of resources? Where is productive efficiency achieved? Can there be more than 1 productively efficient point? What is the difference between productive efficiency and allocative efficiency?
Assumptions to this model:
We assume that there are only two types of goods produced in this economy.
We also assume that technology does not change.
This economic model is no doubt an oversimplification of how the real world works. So what are the implications?