This is shown in Fig. PPC is concave to the origin. On the basis of above schedule we can plot al the coordinates of A, B, C, D, E and F, which show the various combination of two goods, wheat and machines. TOS4. A firm’s average fixed cost is Rs 20 at 6 units of output what will it be at 4 units of output? For instance, if one acre of land produces rice worth Rs. Hence, we can say that leftward shift ofPPC results in fall in output and resources. As we move down along the PPC, to produce each additional unit of one good, more and more units of other good need to be sacrificed. If the country uses all of its resources for the production of only Y, then the maximum possible production of Y will be OPO. On the contrary, if the country moves on the point ‘N’ and ‘T’, i.e., on the PPC, then it shows optimum utilisation of resources or full the PPC shows underutilisation of resources. Therefore, opportunity cost of a factor is also called the transfer earning of the factor or the cost for next best alternative. Suppose there are two goods, guns and butter. In that case, there will be no production of ‘X’. We first calculate the first and second derivative of function f f '(x) = 2 a x + b f "(x) = 2 a 2. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Central problem of an economy arise, because: (iv)    Microeconomics analyses how equilibrium of a consumer, a producer or an industry is attained but macroeconomics is concerned with determination of economy's equilibrium level of income, employment and output. The sign of f "(x) is the same as the sign of a. 5. Suppose the initial production point is B, where 1 unit of capital goods and 48 units of consumer goods are produced. To produce one additional unit of capital good, 4 units of consumer good must be sacrificed (point c). Planning phase 2. It is, therefore, necessary that we must make the best possible utilization of resources to maximize output. This test is Rated positive by 86% students preparing for Commerce.This MCQ test is related to Commerce syllabus, prepared by Commerce teachers. Proof (of Theorem 1) First, from Lemma 1, the convexity of F together with -exp-concavity implies that (P;`; F ) satis es the -central condition. 21. Functions of PPC. Nov 27,2020 - Test: Introduction To Economics - 5 | 25 Questions MCQ Test has questions of Commerce preparation. 3,000 and wheat worth Rs. Redistribution of technology . We can draw the PPC on the basis of above schedule. The diagram or graph explains how many units of goods a company can produce if all the resources are utilized produc… Giving reason comment on the shape of Production Possibilities curve based on thefollowing schedule: Production Possibility Curve (PPC) will be concave to the origin because of the increasingopportunity cost. In business, the Production Possibility Curve (PPC) is applied to evaluate the performance of a manufacturing system when two commodities are manufactured together. Erven et al. When an economy is operating on the PPC, it indicates: a. potential output> actual output b. potential output= actual output c.potential output 0, w > 0, y > 0. To explain the concavity of PPC we have to understand the meaning of opportunity cost and marginal opportunity cost too. 1. Since resources are scarce in every economy, no society can satisfy all the wants of its people. This movement is being depicted in the below graph with the help of thearrow from point P. The large scale outflow of foreign capital will lead to a decrease in the availability ofresources, thereby shifting the Production Possibility Curve (PPC) from right to left that isfrom AB to CD as shown in the following diagram. (vi)    Microeconomics explains how resources are allocated and how total production is distributed among cooperating factors of production but macroeconomics explains how productive capacity and national income of a country increase overtime. The problem of ‘what to produce and in what quantity: This curve also reflects the problem of ‘what to produce’. Share Your PDF File The problem can be categorised under two main heads:(i) Personal Distribution: It means how national income of an economy is distributed among different groups of people. (2015) states that the PPC condition implies the (strong) central condition. These three phases as mentioned above make up the main body of functions of PPC. As we move down along the PPC, to produce each additional unit of GoodX, more and more units of Good Y needs to be sacrificed. Marginal Rate of Transformation (MRT). Ltd. Download books and chapters from book store. 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