Explain why the shape of production possibility frontier is bow shaped
The shape of a production possibility frontier is bow-shaped because of the concept of diminishing marginal returns. In a production setting, resources are limited and not perfectly substitutable, meaning that as more resources are allocated to one good or service, the opportunity cost of producing more of it increases.
At the beginning of the production process, resources are typically allocated to the most efficient combinations, resulting in relatively small increases in output for each additional unit of resources allocated. As more resources are added, however, the law of diminishing returns sets in, causing marginal productivity to decrease. This is represented by the concave shape of the production possibility frontier.
In other words, as a society or firm focuses more on producing one type of good or service, it must give up more and more of the other type of good or service in order to obtain the same level of output. This trade-off is what leads to the bow shape of the production possibility frontier, reflecting the opportunity cost of allocating resources in different ways.