In business analysis, the production possibility frontier (PPF) is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources. The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases.

Is production possibility curve upward and concave?

PPC is concave shaped because of increasing marginal rate of transformation. ... PPC is convex shaped because of decreasing marginal rate of transformation.

Is production possibility curve a concave?

Production Possibility Curve (PPC) is concave to the origin because of the increasing opportunity cost. As we move down along the PPC, to produce each additional unit of one good, more and more units of other good need to be sacrificed. That is, as we move down along the PPC, the opportunity cost increases.

What is production possibility curve with example?

Production Possibilities Curve Example

If the production of watermelons needs to be more, then the production of pineapples should be less. On the graph, point C indicates that if the production of watermelons has to be 45,000, then the company can deliver only 85,000 pineapples.

What are the three types of production possibility curve?

There are 3 types of production possibility curve which are straight-line sloping down, concave and convex curve. The first type of curve has a constant negative gradient or constant ratio which also means that as one item/good decreases by one, the other item/good will increase by one, and it will always be constant.

Production Possibilities Curve Review

35 related questions found

What is production possibility curve?

In business analysis, the production possibility frontier (PPF) is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources. The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases.

Why PPC is not straight line?

Its always drawn as a curve and not a straight line because there a cost involved in making a choice i.e when the quantity of one good produced is higher and the quantity of the other is low. This is known as opportunity cost.

Why are PPC graphs curved?

The production possibilities curve is bowed in shape because of the law of increasing opportunity cost, which explains the idea that the more units of a product are produced, the less capability the economy has of producing other products.

Is PPC and PPF the same thing?

Production Possibility Frontier (PPF) is a graphical presentation of the effects of one commodity or product compared to another. ... Production Possibility Curve (PPC) is merely another term used in reference to this, but the concepts are the same.

Can production possibility curve be a straight line?

A PPC curve can be a straight line only if the marginal rate of transformation (MRT) is constant throughout the curve. A MRT can remain constant only if both the commodities are equally constant and the marginal utility derived from their production is also constant.

Why is production possibility curve?

The Production Possibilities Curve (PPC) is a model used to show the tradeoffs associated with allocating resources between the production of two goods. The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, inefficiency, economic growth, and contractions.

Can PPC be convex?

PPC is convex shaped because of decreasing marginal rate of transformation. It implies that less and less units of commodity sacrificed to gain an additional unit of another commodity.

When the production possibilities curve is bowed out resources are?

The downward slope of the production possibilities curve is an implication of scarcity. The bowed-out shape of the production possibilities curve results from allocating resources based on comparative advantage. Such an allocation implies that the law of increasing opportunity cost will hold.

When a production possibilities frontier is bowed outward?

A production possibilities frontier will be bowed outward if some of the economy's resources are better suited to producing one good than another. The gains from specialization and trade are based on absolute advantage.

Why is the production possibility curve bowed outward?

The curve bows outwards because of the Law of Increasing Opportunity Cost, which states that the amount of a good which has to be sacrificed for each additional unit of another good is more than was sacrificed for the previous unit.

What are the features of production possibility curve?

Features of Production Possibility Curve:

• It Slopes Downwards to Right: Production possibility curve slopes downwards to the right shows that economy has to forgo some quantity of one commodity to get more quantity of other commodity. ...
• Concave to the Origin: Production possibility curve is concave to the origin.

What is production possibility curve explain with diagram?

The production possibility curve represents graphically alternative production possibilities open to an economy. The productive resources of the community can be used for the production of various alternative goods. But since they are scarce, a choice has to be made between the alternative goods that can be produced.

Which of the following is true of the production possibilities curve?

Which of the following is true of a production possibilities curve? It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.

Why is production possibility curve called opportunity cost curve?

Production Possibility Curve is called the opportunity cost curve as it is the curve which shows the combinations of two goods and services that can be produced with fuller utilisation of a given amount of resources in the most efficient way and with a given production technology.

Is PPF curved or straight?

The shape of the PPF is typically curved outward, rather than straight. Choices outside the PPF are unattainable and choices inside the PPF are wasteful. Over time, a growing economy will tend to shift the PPF outwards.

Why is the production possibilities frontier a curve rather than a straight line?

Why is a production possibilities frontier typically drawn as a curve, rather than a straight line? This is due to the law of diminishing returns. ... In this way, the law of diminishing returns produces the outward-bending shape of the production possibilities frontier.

Why is PPC negatively sloped?

The downward sloping nature of the PPC is due to the law of increasing opportunity cost. According to this law, with the fuller utilisation of the given resources, in order to produce an additional unit of one good, some of the resources are to be withdrawn from the production of another good.

What is the production possibilities curve quizlet?

production possibilities curve. a graph or economic model that shows the maximum combinations of goods and services, any two categories of goods, that can be produced from a fixed amount of resources. production possibilities frontier. the line on a production possibilities graph that shows the maximum possible output.

What is the slope of production possibility curve?

The slope of the production possibilities curve is the marginal rate of transformation. The slope shows the reduction required in one commodity in order to increase the output of the second commodity. Since the MRT is constant the slope must be constant and thus the production possibilities curve must be straight line.