Question

Question #4a7b3

Answer 1

A convex PPF implies an increasing marginal opportunity cost for producing each good or service, while a linear PPF implies constant opportunity cost.

Explanation:

The linear PPF is simpler -- which is the main reason for using it. Consider the two shapes:

graph{x+y=10 [-0.75, 19.25, 0.08, 10.08]}

graph{x^2 + y^2 = 100 [-0.05, 19.95, 0, 10]}

In the linear graph, it is easy to see that producing an additional unit of good x has an opportunity cost (giving up) of one unit of y. In the convex graph, the opportunity cost of an additional unit of x increases as the level of production of good x is larger.

The convex PPF seems more realistic. Imagine trying to maximize production of corn. You start by eliminating other crops and growing corn on that vacated farmland. So, an acre of corn requires giving up an acre of soybeans. At really high levels of corn production, though, we don't have any soybean acres left to give up. So we take the least valuable homes or buildings nearby, and give them up -- eventually, we replace skyscrapers and other extremely valuable goods with more acres of corn. You can see how the opportunity cost of an acre of corn becomes enormously high.

Of course, we probably won't tear down any skyscrapers soon, just to plant corn. So, given that we usually talk about tradeoffs in more narrow ranges, maybe a linear PPF is not that bad. All models are simplifications.