Production Possibility Frontier

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  • Topic: Economics, Production-possibility frontier, Opportunity cost
  • Pages : 2 (285 words )
  • Download(s) : 88
  • Published : July 18, 2012
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Production Possibility Frontier (PPF) is also known as Production Possibility Curve (PPC). It means a curve depicting all maximum output possibilities for two or more goods given a set of inputs such as resources, labor, and capital. The Production Possibility Frontier (PPF) assumes that all inputs are used efficiently. Production Possibility Frontier (PPF) categorizes into 3 type of graph which is Straight Line, Concave and Convex. For example the diagram below

Straight Line (PPF)

Convex Line (PPF)

Concave Line (PPF)

Opportunity Cost
Mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If your next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book. It has 3 type of opportunity cost which is constant opportunity cost, increasing opportunity cost and decreasing opportunity cost. Example the table below

Constant Opportunity Cost
PointLaptopPhone
A0100
B2080
C4060
D6040
E8020
F1000

Is a steady potential price to a business that occurs when a company does not take advantage of a feasible chance to earn profits

Increasing Opportunity Cost
PointLaptopPhone
A0100
B2090
C4080
D6050
E8030
F1000

Larger sacrifice of an alternative good caused by an increasingly greater production of another good in a firm or economy, where resources are already being fully and efficiently used
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