What is meant by Production Possibility Frontier?

The production possibility analysis comprises the production possibility frontier (PPF), or the production possibility curve (PPC) to evaluate a society or even an economy. The production possibility curve represents the cost that the society has to incur for choosing between two different commodities. It is assumed that an economy that operates at the highest production possibility curve is known to have a better standard of living which the society can achieve for producing the optimum level of output which it can produce given a specified number of factors of production or inputs or resources.

The production possibility frontier (PPF) is a curve that represents the various combinations of production possibilities of two commodities when resources or factors of production that is land, labour capital, and entrepreneur are given. This curve also represents the concept of opportunity cost. In other words, we can say that producing more of a particular good will cost society the opportunity cost of producing more of another good. The concept of production possibility frontier advocates the idea that if more of a good is to be produced in the society, then it is very important to give up some quantity of another good to maintain an equilibrium of the production in the economy or society. Therefore, this trade-off between two goods represents the opportunity cost that needs to be endured by society. 

Just like the indifference curve shows the various combination of two goods that gives equal satisfaction, production possibility frontier or production possibility curve gives combinations of two goods which can be produced over a specified period of time with the given or specified number of factors of production or inputs. 

When is a Production Possibility Frontier Bowed Outward?

The production possibility frontier is usually shaped as a curve that is facing outward. This represents that the highest points on the production possibility frontier or the product transformation curve shows when the economy or the society is producing a single commodity. The widest or the point which is having the biggest gap is the point when the society or an economy produces none of one good and producing as much as it can produce of the other good. There are the two extreme points in which up society or an economy can produce. All the other points in these two extreme points are the trade-off of one good for the other to produce the combination of two good so that the optimal output is achieved. It is a good idea to produce a mix of two goods because it is assumed that in such a state an economy operates more efficiently.

The production possibility frontier or production possibility curve evaluation or analysis is done because there are scarce resources and the economy needs to increase the allocative efficiency of the society to get a desired outcome of the given resources. It is a good idea that the society should allocate the given scarce resources in such a way that the production possibility curve or the PPF or the production possibility frontier or PPC should represent the combination of the commodities in such a way that there should be an absolute advantage of the resources used and not the comparative advantage within the economy. 

What does the Production Possibilities Frontier illustrate?

It is very important to keep in mind that the production possibility curve or the production possibility frontier does not talk about what the decision-makers or the producers or the suppliers should produce at what quantity or how much of each good in the economy but rather it only tells the ratio of trade-off or the rate of trade-off that should be done between two goods to get the optimum result in terms of output.

The supply-side economists assume that the production possibility curve or the production possibility frontier can be shifted outward by adding more resources, but what if there is no demand. If there is no demand for the good that has been produced it will only mean creating a product out of underutilised resources which is not having any demand ultimately which won't be of any use in the market because there are no customers or consumers to consume or purchase that. 

There are few of the assumptions that can be concluded from the above discussion: 

The first and foremost assumption is that the production possibility curve shows all the possible combinations of goods or products that can be produced given the resource-constrained. There are only two goods that can be produced in an economy. 

Whenever the production of one good decreases the production of another good will always increase because there is a specified number of inputs that are available to be used in the production process. 

Various names are given to a production possibility curve such as production possibility frontier, product transformation curve. 

The production possibility frontier shows the trade-off that society has and also the opportunity cost that is being incurred by the society for making the combination of the production of two goods. 

The production possibility curve should be made in such a way that it represents the absolute advantage of either of the product. 

The analysis and evaluation of the production possibility frontier are extremely important to have an overview of what kind of products or goods need to be given up to have an optimum output level which will be beneficial for the society to thrive on. It is also important to remember that the society has to be or the opportunity cost for producing more of one good and sacrificing the other good. This means that whenever there is increased production of one good the production of another good must be decreased. 

Context and Applications   

This topic is significant in the professional exams for both undergraduate and graduate courses especially for  

• BA in economics
• MA in economics 
• BBA    
• B.Com
• MBA