3 How does the production possibilities frontier show that every choice involves a trade-off? The PPF is bowed outward because resources are not all equally productive in all activities. People with several years of experience working for PepsiCo are good at producing cola but not very good at making pizzas. So if we move some of these people from PepsiCo to Domino’s, we get a small increase in the quantity of pizzas but a large decrease in the quantity of cola.

Similarly, people who have spent years working at Domino’s are good at producing pizzas, but they have no idea how to produce cola. So if we move some of these people from Domino’s to PepsiCo, we get a small increase in the quantity of cola but a large decrease in the quantity of pizzas. The more of either good we try to produce, the less productive are the additional resources we use to produce that good and the larger is the opportunity cost of a unit of that good.

How do we choose among the points on the PPF? How do we know which point on the PPF is the best one?