![]() ![]() No doubt, PPC shows society’s menu of choice but the question is: How does the society choose at which level on PPC to produce? In effect, society begins at an extreme point under vertical axes and produces only one commodity then it gradually moves point by point along the PPC towards the horizontal axes. If opportunity cost remains constant when resources are transferred from one use to another the PPC will be straight-lined with constant slope. This is why the PPC is usually concave to the origin showing increasing slope. In other words, opportunity cost increases. Since resources tend to be specialised, if they are diverted from one use to another their marginal contribution falls. Specialisation:Īs society produces more and more of one type of good, it has to sacrifice or give up a constant, an increasing or a decreasing amount of other types of goods depending on whether marginal opportunity costs are constant, increasing or decreasing. This is the essence of the opportunity cost principle. A full employment economy must always give up some units of one commodity to get more of the other. The slope of the PPC measures opportunity cost ratios or transformation cost ratios. To produce certain amount of one good means giving up certain amount of other goods. In fact, the only ways to produce more of all goods and services are to increase the quantity of resources and to use resources more efficiently. So, more of one commodity can be produced by reducing the production of another commodity. However, resources have alternative uses. Since resources are scarce, only limited quantities of goods and services can be produced. Furthermore, The area beyond this curve represents unattainable combinations and area inside the curve shows the inefficient utilization of resources.The following points highlight the seven applications of Production Possibility Curve (PPC). This curve is known as the Production Possibility or Transformation curve. By combining these points, we get AF curve. Lastly, Point F shows the production possibility of 250 units of butter and no milkshake. Similarly, points B, C, D and E show different combinations of butter and milkshake. Here, The first production possibility is 500 units of milkshake and no butter. In fig, the quantity of butter is shown on X-axis and milkshake on Y-axis. Graphical-Representation: Production Possibility Curve For instance, under ‘B’ combination, it is 450 units of milkshake and 50units of butter under ‘C’ combination, it is 360 units of milkshake and 100 units of butter under ‘D’ combination, it is 270 units of milkshake and 150 units of butter and under ‘E’ combination, it is 150 units of milkshake and 200 units of butter. Besides these limits, there are many alternatives possibilities of production of milkshake and butter. On the other hand, if production is obtained under ‘F’ combination, then 250 units of butter will be produced without any production of milk-shake. The above schedule shows that if production is carried out under ‘A’ combination, then 500 units of Milk-shake alone will be produced without any production off butter. Moreover, If the producer produces both the goods, then within these limits, various combinations can be produced. On the other hand, if all the resources are used for the production of butter only, then 250 units of butter can be produced. If all the resources are used for making milkshake alone, then 500 bottles of milkshake can be produced. Suppose, a producer decides to produce only two goods namely, milkshake and butter with the available resource “cow’s milk” and given technology. For example, apples and wheat or capital goods and consumer goods. It is assumed there are only two goods or two sets of goods are produced in the economy.There is neither any improvement nor innovation in technology. ![]() ![]() The given resources are utilized fully and efficiently.They can be transferred from one use to another to some extent. The number of factors of production is given and assumed as fixed.“Production Possibility Curve is that curve which represents the maximum amount of a pair of goods or services that can be produced with an economy’s given resources and technique assuming that all resources are fully employed.” Assumptions : Unimax Publications Book’s Solution – PSEB.Usha Publication Book’s Solution – PSEB. ![]()
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