Question 3
Basic ConceptsThe shape of a production possibility frontier is determined by the
- A.increasing relative costs
- B.returns to scale
- C.diminishing returns to a fixed factor
- D.increasing returns to a variable factor.
Show the answer and explanation
Answer: A (increasing relative costs)
Explanation
The frontier bows outward because each extra unit of one good costs more and more of the other good: increasing relative (opportunity) costs.