Which of the following statements about the shape of the production possibilities frontier (PPF) is correct?

• A. The PPF is always a straight line because resources are perfectly adaptable.
• B. The PPF is bowed inward because of the law of increasing marginal returns.
• C. The PPF is typically bowed outward due to the law of increasing opportunity costs.
• D. The PPF's shape is unrelated to opportunity costs or resource allocation.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what a Production Possibilities Frontier (PPF) represents. It shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized.
2. Step 2: Recall that the shape of the PPF depends on how opportunity costs change as production shifts from one good to another. If opportunity costs are constant, the PPF is a straight line; if opportunity costs increase, the PPF is bowed outward.
3. Step 3: Recognize that the law of increasing opportunity costs states that as you produce more of one good, the opportunity cost (in terms of the other good foregone) increases because resources are not perfectly adaptable to producing both goods.
4. Step 4: Understand that the PPF is typically bowed outward (concave to the origin) because resources are specialized and not equally efficient in producing all goods, leading to increasing opportunity costs.
5. Step 5: Evaluate the given statements: the PPF is not always a straight line (so the first statement is incorrect), it is not bowed inward (which would imply decreasing opportunity costs), and its shape is directly related to opportunity costs and resource allocation, so the correct statement is that the PPF is typically bowed outward due to the law of increasing opportunity costs.