The
implication of the opportunity cost curve being convex, concave and a straight line are given below--------
• Convex: (Increasing Cost) this is the standard
convex production possibilities
curve with increasing opportunity cost. Because it best reflects the economy, it is
the
one most commonly seen throughout the study of economics. In this case the
economy foregoes increasing
amounts of one good when producing more of the other.
• Straight Line: (Constant Cost): This is a straight line production possibility
"curve" that indicates constant opportunity cost. In this case,
opportunity cost does not change with production. This is not a realistic
reflection of the entire economy, but it
can represent the production of some goods.
Here the economy foregoes
the same amount of one good when producing more of the other.
• Concave: (Decreasing Cost ): This is concave
production possibilities curve with decreasing opportunity cost. In this case,
opportunity cost actually decreases with
greater production. While opportunity cost can decrease in limited circumstances, this is unlikely to happen
for the economy as a whole.
To do so would contradict
the
assumption of technical efficiency and it
is
contrary to real world observations. In this case the economy foregoes decreasing amounts of one good when producing more of the other.
