Decisions made by individuals, companies, and countries influence the potential of an individual, company, and country. These brilliant people may be deterred from developing a life-saving drug. It shows the quantities of two products the company can produce if both products depend on the same resource. Or, assume government chooses to hire the brightest scientists to develop very sophisticated weapons. The production possibilities frontier (PPF), also known as the production possibility curve (PPC) or the transformative curve, is a statistical curve that a business can implement. Naturally, the banking industry would thrive, but perhaps the manufacturing industry would suffer because there would be fewer manufacturing innovations. Imagine an economy where the brightest minds pursue banking careers. When people or resources are allocated to achieve an objective, another objective must suffer if we are operating on the production possibilities frontier. Understanding the implications of the production possibilities curve helps us prioritize. This can occur anywhere within the area BGD. For example, at Point G, Clean Speech could increase the production of both cell phones and soap without reducing the other. A company or country can utilize its resources more efficiently to increase production. A ny point inside the frontier is less than capacity. (Point C) The opportunity cost of increasing the number of cell phones from 1,500 to 2,700 is 2,500 vats of soap (9,500 - 7,000). Soap production would drop to a maximum of 7,000 vats per day. If the leadership chooses to increase the production of cell phones to 2,700, resources would need to be taken away from manufacturing soap. The curve tells us that it is possible to produce 9,500 vats of soap and 1,500 cell phones. A production possibilities curve is a graphical representation of the alternative combinations of goods and services an economy can produce. If the leaders choose to produce 3,500 cell phones Clean Speech needs to allocate all of its resources to manufacture cell phones, at the expense of soap. This is represented as point A on the graph below. Clean Speech could produce 10,000 vats of soap per day if it dedicated all of its resources to producing soap. Assume a country, Clean Speech, is only able to produce vats of soap and cell phones. The curve depicts the maximum production capacity of a company or country. Detailed Explanation:Įconomists use the production possibilities frontier to illustrate several basic economic concepts, including scarcity, opportunity cost, efficiency, and the relationship between efficiency and economic growth. The production possibilities frontier is also referred to as the production possibilities curve. The production possibilities frontier is a graphical representation of combinations of amounts of two goods or services that an economy can produce by transferring resources from one good or service to another. The curve depicts the maximum production capacity of a company or country. View FREE Lessons! Definition of the Production Possibilities Frontier:
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