In PPC it a straight line it happens only when resources are equally efficient what will happen if resources are differently efficient In v.k. ohri pg no.14(2016) it is given marginal rate transformation is 0.5?How ?What is difference between resources are equally efficient or resources are different efficient?
Shivang,
When resources are differently efficient and are moved from the production of one commodity to another, it will lead to rise in cost, i.e. a rise in marginal opportunity cost. Efficiency while performing the production activity describes the productivity which is expressed as a ratio of units of output produced and units of input employed. Let us suppose that the input be taken as worker. Assume that only two goods are being produced by an economy- A and B. Now assume that worker is highly suitable for the production of commodity A and therefore get employed in production of commodity A. The decision has been taken by an economy to lessen the production of commodity A and increase the production of commodity B. Now to produce more of commodity B, worker employed in production of commodity A will be transferred to the production of commodity B. But the worker is relatively more efficient in the production of commodity A rather than commodity B. So, he will produce less units of commodity B, indicating less productivity which leads to increase in the production cost.
Resources are equally efficient when the slope of PPC, ie. Marginal Rate of Transformation(MRT) is constant and then PPC is a straight line. However, when MRT rises the shape of PPC changes and resources are considered as differently efficient.
As far as your query regarding MRT = 0.5 is concerned, please provide us the complete information or table so that we can help you in a better manner.
When resources are differently efficient and are moved from the production of one commodity to another, it will lead to rise in cost, i.e. a rise in marginal opportunity cost. Efficiency while performing the production activity describes the productivity which is expressed as a ratio of units of output produced and units of input employed. Let us suppose that the input be taken as worker. Assume that only two goods are being produced by an economy- A and B. Now assume that worker is highly suitable for the production of commodity A and therefore get employed in production of commodity A. The decision has been taken by an economy to lessen the production of commodity A and increase the production of commodity B. Now to produce more of commodity B, worker employed in production of commodity A will be transferred to the production of commodity B. But the worker is relatively more efficient in the production of commodity A rather than commodity B. So, he will produce less units of commodity B, indicating less productivity which leads to increase in the production cost.
Resources are equally efficient when the slope of PPC, ie. Marginal Rate of Transformation(MRT) is constant and then PPC is a straight line. However, when MRT rises the shape of PPC changes and resources are considered as differently efficient.
As far as your query regarding MRT = 0.5 is concerned, please provide us the complete information or table so that we can help you in a better manner.