Question

What would the PPF look like if there is MPP is constant? What is the implication for the decision of what to produce when the MPP is constant

Answer 1

Under the production possibilities Frontier one of the major assumption is that the marginal productivity of labour is diminishing. Because of diminishing returns the opportunity cost of producing a particular good increases in terms of other good along the production possibilities Frontier.

If there are constant returns and that marginal product remains constant, then total product curve will be a straight line indicating that each additional unit of resource increases the output by same amount. this also implies that the opportunity cost of producing one good in terms of the other will be constant. Hence the production possibility Frontier will be a straight line downward sloping suggesting that the opportunity cost is constant and not increasing.

The implication is that the economy can produce any combination of two goods at the same opportunity cost of production.