![]() ![]() Summary Definitionĭefine Production Possibility Curve: PPC is a graphical representation of the number of products a company can produce if it uses all of its resources to produce two products. The opportunity cost for producing 1,500 units of pencils becomes the 300 units of forgone pens. The company has recently received more demand for pencils, so management decided to increase the production of pencils from 1,000 units to 1,500 units by reducing the output of pens from 800 units to 5oo units. Currently, it is producing 1,000 pencils and 800 pens. Likewise, it can produce 1,500 pens if it doesn’t produce a single pencil. The input is any combination of the four factors of production: natural resources (including land), labor, capital goods, and entrepreneurship. The company can produce 2,000 pencils if it doesn’t produce a single pen. A production possibilities curve in economics measures the maximum output of two goods using a fixed amount of input. Their resources for producing the two products are fixed. XYZ Company, Ltd is known for producing and selling pens and pencils. This means that the output of product A can only increase if the output of product B decreases.Īnother assumption is that technological advances and production improvements are fixed. One key assumption the PPC makes is that all resources for production are fixed. A production possibility frontier (PPF) is a curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst. Any point below the curve represents a production level that isn’t using 100 percent of the company’s resources. Any point above the curve is unattainable with the given amount of company resources. ![]() As the company diverts more resources to producing product B, the production of product A will decrease. This downward sloping line represents the trade off between producing product A and product B. The curve is drawn to represent the number of goods that can be produced using limited resources and a halt in technology at each point. Thus, one product’s maximum production possibilities are plotted on the X-axis and the other on the Y-axis. The graph shows the maximum number of units that a company can produce if it uses all of its resources efficiently. Management uses this graph to decide the ideal ratio of units to produce to minimize cost and waste while maximizing profits. What is the definition of production possibility curve? In business, the PPC is used to measure the efficiency of a production system when two products are being produced together. What Does Production Possibilities Curve Mean? Definition: The Production Possibilities Curve, also known as the production possibilities frontier, is a graph that shows the maximum number of possible units a company can produce if it only produces two products using all of its resources efficiently.
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