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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 that can be produced using all factors of production, where the given resources are fully and efficiently utilized per unit time.
At this equilibrium point, the slope of the highest indifference curve must equal the slope of the production function. Recall that the marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility. [ 6 ]
An example PPF: points B, C and D are all productively efficient, but an economy at A would not be, because D involves more production of both goods. Point X cannot be achieved. Productive efficiency occurs under competitive equilibrium at the minimum of average total cost for each good, such as the one shown here.
The PPF and thus production will shift to point B. Production of clothing, the labour-intensive good, will rise from C 1 to C 2. Production of cars, the capital-intensive good, will fall from S 1 to S 2. If the endowment of capital rose the capital constraint would shift out causing an increase in car production and a decrease in clothing ...
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 ...
When it produces at point B, it can trade with the other country and consume at point S. We now look at our Offer curve and draw a ray at the level 5 Y for 7 X. When full specialization occurs, K then produces at point A, trades and then consumes at point T. The price has reduced to 1 Y for 1 X, and the economy is now at equilibrium.
Productive capacity has a lot in common with a production possibility frontier (PPF) that is an answer to the question what the maximum production capacity of a certain economy is which means using as many economy’s resources to make the output as possible. In a standard PPF graph, two types of goods’ quantities are set.
If the two production technologies are the arable industry and the fishing industry it is assumed that farmers can shift to work as fishermen with no cost and vice versa. It is further assumed that capital can shift easily into either technology, so that the industrial mix can change without adjustment costs between the two types of production.