Question

03
Define Marginal Rate of Transformation Calculate MRT for the following table
Good x
Good Y
MRT
1
150
2.
100
3
60
4
30​

Answer 1

Explanation:

The slope of production possibility curve is marginal opportunity cost which refers to the additional sacrifice that a firm makes when they shift resources and technology from production of one commodity to the other. Therefore, if marginal opportunity cost remains constant as in the above case i.e. 13 then production possibility curve will be a straight line owing to constant slope.

 Good-A (Units)Good-B (Units)Marginal Opportunity Cost 0 65 − 1 52 113=13 2 39 113=13326 113=134 13 113=1350 113=13

The above schedule shows that the marginal opportunity cost of producing more of Goods-A in place of Good-B is constant =13. Accordingly , production possibility frontier should be a downward sloping straight line.