Assume that there were decreasing opportunity costs of production in an island economy that only produced two goods. What would the shape of the production possibilities frontier look like and why?

What will be an ideal response?

The production possibilities frontier would be downward-sloping and bowed into the origin. It would have this shape because as you move down the production possibilities frontier the amount of one good that you must give up will get smaller and smaller as you produce the second good.

Difficult: E