Success Roar Classes

Introduction to “Production Possibility Curve”

Synopsis

Production Possibility Curve is a curve which shows all the possible combinations of two goods which can be produced by making fuller and efficient use of given resources and available technology.

Meaning 

The 3 words of PPC have their own meaning. 

Production – Conversion of scarce resources into useful products with the given technology

Possibility – All possible combinations of 2 goods (cannot consider all goods produced as they are infinite in numbers.) 

Curve – A diagrammatic presentation of the data given. 

On summarizing the meaning of the above 3 words, we get –

“Production Possibility Curve is a curve which shows all the possible combinations of 2 goods that can be produced with the existing resources and given technology. “

Alternative names

  • Production Possibility Line
  • Production Possibility Frontier
  • Transformation Curve
  • Production Boundary

PPC Schedule and Diagram

PPC Schedule - Success Roar Classes
PPC Schedule – Success Roar Classes

From the above schedule, it is very much clear that to produce an extra unit of a Cricket bat, a producer has to sacrifice certain units of Chairs.

In combination A, we are producing 75 units of chairs and 0 units of cricket bat.

In combination B, to produce a single unit of cricket bat, we have sacrificed 5 units of chairs.

And this process of sacrificing units of Chairs to produce more of Cricket Bats keep on going till the time production of Chairs reached 0 and all resources have been allocated to Cricket Bats as resources are fixed and technology is constant.

This sacrificing ratio also keeps on increasing as resources are not equally efficient in the production of all goods.

Means Marginal Opportunity Cost keeps on increasing as more and more resources are shifted from the production of one good to the other.

PPC Curve - Success Roar Classes
PPC Curve – Success Roar Classes

Here in the diagram, you can see two points which are not on the curve.

Point G: It represents the under utilization and inefficient utilization of resources as the economy is working much below their actual capacity.

Point H: It is away from the reach of the economy. While studying PPC, we have assumed that all resources are fully utilized and this point is outside the PPC which can only be achieved in case of growth of resources or development of efficient technology. So, it is an “Unattainable Combination.”

Production Possibility Set

Collection of all possible combinations of goods and services that can be produced from the given resources and technological knowledge. In our example, A, B, C, D, E constitutes Production Possibility Set.

Assumptions

PPC is based on certain assumptions which are as under-

  1. The resources are given and remain fixed. 
  2. The technology is given and remains constant.
  3. Resources are fully and efficiently utilized.
  4. The resources are not equally efficient in the production of all goods. Thus, if resources are transferred from production of one good to another, the cost increases.

Properties 

Do you know what PPC curve tells us?

Let’s have a look – 

1. It is concave to the origin: It is because as more and more resources are shifted from the production of Chair to the production of Cricket Bats, Marginal Opportunity Cost (MOC) tends to rise.

MOC rises because the resources are not equally efficient in the production of all goods.

2. It slopes downward from left to right: In a situation of fuller utilization of resources, production of both the goods cannot be increased simultaneously.

Production of Chairs needs to be sacrificed to produce more of Cricket bats.

Conclusion

Finally, we can conclude that PPC is a curve that helps a producer in analyzing the various possible combinations of goods which can be produced with the available resources and technology to attain maximum profit.

Read More: Shifting or Rotation of Production Possibility Curve

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