Production Possibility Curve
Production Possibility Curve
In
business, a production possibility curve (PPC) is made to evaluate the
performance of a manufacturing system when two commodities are manufactured
together. The management utilises this graph to plan the perfect proportion of
goods to produce in order to reduce the wastage and costs while maximising
profits.
The
diagram or graph explains the units of goods that a company can produce if all
the resources are utilised productively. Therefore, a single commodity’s
maximum manufacturing probability is arranged on the X-axis and that of the
other commodity on the Y-axis. Here, the curve is represented to show the
number of products that can be created with limited resources, while pausing the use of technology in between.
In the graph, the line sloping down also depicts
the trade-off between producing commodity A and commodity B. When a firm
diverts its resources to produce commodity B, the production of commodity A
reduces.
A point
above the curve indicates the unattainable with the available resources. A
point below the curve means that the production is not utilising 100 percent of
the business’ resources.
Production Possibilities Curve Example
The
production of 20,000
watermelons and 1,20,000 pineapples is shown on point B in the graph. 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. With this trade-off, the curve shows the idea
of opportunity cost.
The
production possibility curve also shows the choice of society between two
different products.
Production Possibilities
Curve Diagram
|
Shape
of PPC |
●
It is downward sloping and concave to the point of origin. |
|
Reasons
for such shape of PPC |
● It
is downward sloping because of the few units we sacrifice
for the others, as there exists an inverse relationship between the change in
quantity of one commodity and the change in quantity of the other
commodities. ●
PPC is concave-shaped because more and more
units of one commodity are sacrificed to gain an additional unit of another
commodity. |
|
Underutilisation
of resources (Any
point under the PPC) |
●
However, if there is unemployment or inefficiency in
resource utilisation, then we can produce at any point inside the PPC. |
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