In the context of the production possibilities frontier (PPF), what does increasing marginal opportunity costs mean?

• A. Resources are perfectly adaptable to the production of all goods.
• B. The PPF is a straight line, indicating constant trade-offs between goods.
• C. Producing each additional unit of one good requires giving up increasingly larger amounts of the other good.
• D. The opportunity cost of producing one good remains constant as more is produced.

Answer: (C)

Verified step by step guidance

1. Understand the concept of the Production Possibilities Frontier (PPF), which shows the maximum possible output combinations of two goods that an economy can produce given its resources and technology.
2. Recognize that the shape of the PPF reflects opportunity costs: a straight line indicates constant opportunity costs, while a bowed-out (concave) curve indicates increasing marginal opportunity costs.
3. Define increasing marginal opportunity costs as the situation where producing each additional unit of one good requires sacrificing larger and larger amounts of the other good, due to resources being not perfectly adaptable between the production of the two goods.
4. Interpret that this increasing cost is why the PPF is typically concave to the origin, reflecting that resources are better suited for producing some goods than others, so reallocating resources becomes less efficient as production shifts.
5. Conclude that the statement 'Producing each additional unit of one good requires giving up increasingly larger amounts of the other good' correctly describes increasing marginal opportunity costs.