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Production Possibility Curve

Production Possibility Curve We know that the resources, both human and material, at the disposal of the community arc strictly limited and they are capable of alternative uses, whereas we want to produce innumerable commodities, i.e., the ends are unlimited. We have, therefore, to choose the most desirable assortment of goods that we can produce with the resources that we command and with a given state of technical knowledge.

Production Possibility Curve

 

We know that the resources, both human and material, at the disposal of the community arc strictly limited and they are capable of alternative uses, whereas we want to produce innumerable commodities, i.e., the ends are unlimited. We have, therefore, to choose the most desirable assortment of goods that we can produce with the resources that we command and with a given state of technical knowledge. Had the resources at our disposal been unlimited, there would have been no problem, and we would have produced more of everything to satisfy our wants. If some resources were lying idle, then also it would have been possible to increase the production of all goods. But, in an economy characterized by full employment, some goods can be produced only by foregoing the production of some other goods. This is in keeping with the opportunity cost principle.

An economy has a certain population and some millions of workers of various grades; it has mastered certain techniques of production; it has certain resources in the form of land, water and other natural resources. That is, it has a certain number of factors or inputs. The society has really to decide how these resources can be utilized to produce the various possible commodities. In further words, it has to find out its production possibility curve.

The PPC (Production Possiblity Curve) illustrates the utmost output of any one product that the market can generate mutually with the prearranged quantities of other commodities produced and the resources utilized. In short, the production possibility curve tells us what assortment of goods and services the economy can produce with the resources and techniques at its disposal. The assortment on the curve is regarded as technically well-organized and underneath it as incompetent, for the straightforward explanation that the economy is competent of producing a better variety at least in respect of one product without decreasing any other. Any assortment which is beyond the frontier is really beyond the economy's power and is unattainable. The production possibility curve depicts the society's menu of choices.

Increase in the resources at the disposal of the firm will take it to a higher production possibility curve.

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