Production Possibilities Curve:

PRODUCTION POSSIBILITIES CURVE:

A curve that illustrates the production possibilities of an economy--the alternative combinations of two goods that an economy can produce with given resources and technology. A production possibilities curve (PPC) represents the boundary or frontier of the economy's production capabilities, hence it is also frequently termed a production possibilities frontier (PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape.

Production possibilities is an analysis of the alternative combinations of two goods that an economy can produce with existing resources and technology in a given time period. This analysis is often represented by a convex curve.

A standard production possibilities curve for a hypothetical economy is presented here. This particular production possibilities curve illustrates the alternative combinations of two goods--crab puffs and storage sheds--that can be produced by the economy.

The production possibilities curve should be compared with the production possibilities schedule, such as the one presented to the left. A schedule presents a limited, discrete number of production alternatives in the form of a table. The production possibilities curve, in contrast, presents an infinite number of production alternatives that reside on the boundary of the frontier. The production possibilities schedule is commonly used as a starting point in the derivation of the production possibilities curve.