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Production–possibility frontier. In microeconomics, a production–possibility frontier ( PPF ), production possibility curve ( PPC ), or production possibility boundary ( PPB) is a graphical representation showing all the possible options of output for two goods that can be produced using all factors of production, where the given resources ...
The production possibilities frontier (PPF) for guns versus butter. Points like X that are outside the PPF are impossible to achieve. Points such as B, C, and D illustrate the trade-off between guns and butter: at these levels of production, producing more of one requires producing less of the other. Points located along the PPF curve represent ...
[2] [3] The law of diminishing returns does not cause a decrease in overall production capabilities, rather it defines a point on a production curve whereby producing an additional unit of output will result in a loss and is known as negative returns. Under diminishing returns, output remains positive, but productivity and efficiency decrease.
The original H–O model assumed that the only difference between countries was the relative abundances of labour and capital. The original Heckscher–Ohlin model contained two countries, and had two commodities that could be produced. Since there are two (homogeneous) factors of production this model is sometimes called the "2×2×2 model".
Pareto was hampered by not having a concept of the production–possibility frontier, whose development was due partly to his collaborator Enrico Barone. His own 'indifference curves for obstacles' seem to have been a false path. Shortly after stating the first fundamental theorem, Pareto asks a question about distribution:
Figure 6: Production possibilities set in the Robinson Crusoe economy with two commodities. The boundary of the production possibilities set is known as the production-possibility frontier (PPF). This curve measures the feasible outputs that Crusoe can produce, with a fixed technological constraint and given amount of resources.
Productive inefficiency, with the economy operating below its production possibilities frontier, can occur because the productive inputs physical capital and labor are underutilized—that is, some capital or labor is left sitting idle—or because these inputs are allocated in inappropriate combinations to the different industries that use them.
In welfare economics, a utility–possibility frontier (or utility possibilities curve ), is a widely used concept analogous to the better-known production–possibility frontier. The graph shows the maximum amount of one person's utility given each level of utility attained by all others in society. [1] The utility–possibility frontier (UPF ...