Production possibilities curve

The production possibilities curve (PPP), or production possibilities frontier (PPF), lists the maximum quantities in which it is possible to produce between two or more products.

This concept considers scarcity, the limitation in the choices of a production, since to produce more than one product the quantity of another is reduced, when the capacity is maximum.

For FPP, available resources and technologies are considered, which allow obtaining the maximum quantities in the economy. Also, when analyzing a graph, the curve is the one that indicates the maximum in the production mix.

Example of production possibility curve

Starting from a simple example, we consider a production carried out by a single worker, who in one hour has the capacity to produce different quantities of part A and part B.

In one hour, the productive capacity of this worker is maximum in the quantity of one of the pieces when it stops producing the other completely.

In this example, when the worker produces 60 pieces A, he does not produce any B, and when he produces 30 pieces of B, he does not produce any A. The intermediate quantities are:

Ask toPart b

For these quantities, it is possible to analyze the production possibilities curve of this worker through a graph:

For these production possibilities, there is a function that defines the CPP values:  A = 60 – 2xB  .

In addition to demonstrating the values ​​implicit in production, the CPP function limits production to its full capacity. With 10 pieces of A and 15 pieces of B produced, for example, the production has not reached its full capacity, so it is possible to produce even more until it reaches the edge.

Production possibilities and opportunity cost

When analyzing the maximum capacity of a production, economic science considers the amount that remains to produce one product to increase the other, due to the shortage scenario.

The opportunity cost is the theoretical measure that indicates the cost of not producing one product to produce the other. In the case of CPP, this value is indicated by the slope of the edge.

Considering the previous example, the opportunity cost can be measured through the quantities that are reduced from B to produce more of A, as exemplified below:

Decrease in B ÷ Increase in A = (20-25) ÷ (20-10) = -0.5

That is, to decrease B from 25 to 20, A increases from 10 to 20. The result means that, for each increase in the production of A, the opportunity cost is to reduce 0.5 amounts of B while maintaining production at its maximum. ability.