Production Possibility Curve is a curve which shows all the possible combinations of two goods which an economy can produce with full and efficient utilisation of its given resources and technology in a given period of time.
Production Possibilities
| Production Possibility |
Commodity
A |
Commodity
B |
Marginal opportunity cost of commodity A |
| A |
0 |
15 |
- |
| B |
1 |
14 |
15-14= 1 |
| C |
2 |
12 |
14-12=2 |
| D |
3 |
9 |
12-9 =3 |
| E |
4 |
5 |
9-5=4 |
| F |
5 |
0 |
5-0=5 |
Characteristics of PPC-
i) PPC is downward sloping- PPC assume that all the resources in the economy are fully and efficiently utilized so in order to increase the production of one good economy has to decrease the production of other good. Thus it is downward sloping.
ii) PPC is concave to origin –PPC is concave to origin because of increasing Marginal rate of transformation (MRT) / Marginal opportunity cost (MOC).
Marginal rate of transformation (MRT) increases because it assumes that all the resources are not equally efficient to produce all the goods. Therefore, as resources are transferred from one good to another good, less and less efficient resources are transferred it increases the cost and MRT
