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Production possibilities frontier


A production–possibility frontier (PPF) or production possibility curve (PPC) is a graphical representation of possible combination of two goods with constant resources and technology.

It is a graph representing production tradeoffs of an economy given fixed resources. In its microeconomic applications, the graph shows the various combinations of amounts of two commodities that an economy can produce per unit of time (such as number of guns vs. kilograms of butter) using a fixed amount of each of the factors of production, given the production technologies available.

At the macroeconomic level, it can be used to depict other rivalrous trade-offs like production of fixed capital versus production of consumer goods. Graphically bounding the production set for fixed input quantities, the PPF curve shows the maximum possible production level of one commodity for any given production level of the other, given the existing state of technology.

By doing so, it defines productive efficiency in the context of that production set: a point on the frontier indicates efficient use of the available inputs, and a point beneath the curve indicates inefficiency. The commodities compared can be goods or services. The combination represented by the point on the PPF where an efficient economy operates shows the priorities or choices of the economy, such as the choice of producing more capital goods and fewer consumer goods, or vice versa.

PPFs are normally drawn as bulging upwards or outwards from the origin ("concave" when viewed from the origin), but they can be represented as bulging downward (inwards) or linear (straight), depending on a number of factors. A PPF illustrates a number of economic concepts, such as scarcity of resources (the fundamental economic problem that all societies face), opportunity cost (or marginal rate of transformation), productive efficiency, allocative efficiency, and economies of scale.


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