Final answer:
Adding additional risky assets to the investment opportunity set will generally shift the efficient frontier up and to the right, expanding the range of potential investments and their expected returns, while diversifying risks.
Step-by-step explanation:
Adding additional risky assets to the investment opportunity set will generally move the efficient frontier up and to the right. This is because including more risky assets typically has the potential to increase the return of the portfolio for a given level of risk, thereby shifting the frontier up and to the right, suggesting a wider set of investment possibilities with potentially higher returns. This assumption is based on the diversification benefits that additional assets can offer, reducing the portfolio's overall risk through the spreading of specific risks across different investments.
The Production Possibilities Frontier (PPF) in economics can also reflect a similar concept, where allocating resources to different uses can lead to an outward-bending shape due to the law of increasing opportunity cost, indicating efficiency and the trade-offs in opportunity costs when choosing between different production options.