Production possibilities frontiers help you understand several important concepts in economics. They:
illustrate the concept of Economic Growth
or decline
plot points on a graph
“read” points on a graph
calculate opportunity cost
change the position of the PPF curve
Worked example
In this example, I’ll show you how to plot the points of the PPF, determine whether any given combination is inside, on, or outside the PPF, calculate opportunity cost, and shift the PPF.
We’ll start with the following combinations of possible outputs. Recall that these represent the maximum possible combinations because we are using our resources as efficiently as possible. All of these combinations are “efficient.”
Step 2: find efficient, inefficient and unattainable combinations.
Efficiency: Any combination of pies and capris that lies on the PPF is considered to be efficient. It is efficient to produce 0 pies and 20 capris. It is efficient to produce 4 pies and 0 capris. It is equally efficient to produce 1 pie and 18 capris. Efficiency has nothing to do with whether a combination is desirable.
Inefficiency: For any given number of pies produced, if you produce less than the maximum possible number of capris, you are producing inefficiently. For example, if you are currently producing 3 pies and 6 capris, you are inefficient because you could have produced as many as 8 capris when producing 3 pies. In general, any combination of pies and capris that is “inside” the PPF is inefficient.
Unattainable: Given your current resources, it is not possible to produce 4 pies and 14 capris. If you simply must have 4 pies, you’ll have to reduce the amount of capris to 0. If you simply must have 14 capris, you must reduce the amount of pies to 2. In general, any combination of pies and capris that is “outside” of the PPF is unattainable.
Step 3: Calculate the opportunity cost of pies in terms of capris given up.
How much does it cost to produce pies? Cost is measured as opportunity cost – what you have to give up in order to get more pies.
The post Production Possibilities Frontiers appeared first on Homeworkaider.
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but you proved you are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 11***| Rating: ⭐⭐⭐⭐⭐
"This company is the best there is. They saved me so many times, I cannot even keep count. Now I recommend it to all my friends, and none of them have complained about it. The writers here are excellent."
"Order a custom Paper on Similar Assignment at essayfount.com! No Plagiarism! Enjoy 20% Discount!"
