What is the production possibilities curve?
In business, the Production Possibility Curve (PPC) is applied to evaluate the performance of a manufacturing system when two commodities are manufactured together. The management utilizes this diagram to plan the perfect proportion of goods to produce to reduce the wastage and cost while maximizing profits.
The diagram or graph explains how many units of goods a company can produce if all the resources are utilized productively. Therefore, a single commodity’s maximum manufacturing probability is arranged on the X-axis and other on the Y-axis. Here, the curve is represented to show the number of products that can be created with limited resources and pausing the use of technology in between.
In the graph, the line sloping down also depicts the tradeoff between producing commodity A and commodity B. When a firm diverts its resources to produce commodity B, the production of commodity A will reduce.
A point above the curve indicates unattainable with the available resources. A point below the curve means the production is not utilizing 100 per cent of the ‘business’s resources.
Related link: What is Demand?
Production Possibilities Curve Example
If a company produces 20,000 watermelons and 1,20,000 pineapples. On the diagram, its point B. If the production of oranges needs to be more, then the production of the apple should be lesser. On the graph, point C indicates that if it production of watermelons has to be 45,000, then the company can deliver only 85,000 pineapples. With this tradeoff, the curve shows the idea of opportunity cost.
The production possibility curve also shows the choice of society between two different products.
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Production Possibilities Curve Diagram
|Shape of PPC||
|Reasons for Such Shape of PPC||
|Under Utilization of Resources
(Any Point Under the PPC)
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