Production Possiblities Curve

Production Possibilities Curve

Introduction

    The production possibility frontier or curve (PPF or PPC) shows the maximum output that can be produced in an economy at any given moment, given the resources available. If an economy is fully utilizing its resources then it will be producing on the PPF. A curve that illustrates the production possibilities of an economy--the alternative combinations of two goods that an economy can produce with given resources and technology. A production possibilities curve (PPC) represents the boundary or frontier of the economy's production capabilities, hence it is also frequently termed a production possibilities frontier (PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape. Production possibilities is an analysis of the alternative combinations of two goods that an economy can produce with existing resources and technology in a given time period. This analysis is often represented by a convex curve. A standard production possibilities curve for a hypothetical economy is presented here. This particular production possibilities curve illustrates the alternative combinations of two goods--crab puffs and storage sheds--that can be produced by the economy.

The importance of production-possibility curve
    In economics, a production-possibility frontier (PPF), sometimes called a production-possibility curve or product transformation curve, is a graph that compares the production rates of two commodities that share the same factors of production. The PPF curve shows the specified production level of one commodity that results given the production level of the other. It assumes the maximum possible efficient use of the resources for a maximum possible...