In the context of production possibilities, how does an increase in marginal cost affect resource allocation decisions in an economy?

When we talk about production possibilities, we are looking at how an economy can use its resources to produce different goods and services. If the marginal cost of producing something increases, it means that making one more unit of that good is more expensive. This change affects how resources are allocated because businesses and governments will think twice before producing more of that good; they might choose to produce something else that costs less to make. For example, if a factory finds that making one more toy costs a lot more than before, it might decide to produce fewer toys and make more bicycles instead, which are cheaper to produce. As a result, the overall mix of products in the economy changes based on these cost decisions.