What is indicated by an outward-bowing production possibilities frontier?

An outward-bowing production possibilities frontier (PPF) indicates increasing opportunity costs. This shape demonstrates that as the production of one good increases, larger and larger amounts of the other good must be sacrificed. The resources used in production are not equally efficient in producing every good; as production shifts from one good to another, the economy must reallocate resources that are not perfectly adaptable. Thus, it increasingly costs more in terms of the goods forgone to produce additional units of the first good.

In contrast, a straight-line PPF would suggest constant opportunity costs, implying that the trade-off between goods remains the same regardless of the quantity produced. In this scenario, resources are perfectly adaptable for producing either good. The concept of fixed production resources is not consistent with the outward-bowing PPF, as this shape suggests the economy can utilize a variety of resources effectively, rather than being limited to fixed capacities. Hence, the outward bowing of the PPF clearly illustrates the principle of increasing opportunity costs, which is a fundamental concept in understanding trade-offs in production.