The production possibilities frontier is a graph that shows the various combinations of products that can be produced given the available factors of production (Mankiw, 2023).
Note. From Principles of Economics, The production possibilities frontier by N. Mankiw, 2024 Cengage.
In this example, if a company uses all of its resources to produce only cars, then the company can produce 1,000 cars. On the reverse side, if the company only produces computers, then they can produce 3,000 computers with the given resources
Point A
600 cars and 2200 computers can be produced with the given resources. By moving more resources to car production, the company can increase car production from 600 to 700 but this will cause a reduction in computers produced – from 2,200 to 2,000.
This would be an opportunity cost for increasing car production. Reallocation of resources creates movement along the production possibilities frontier.
Point C
This point is above the curve of the PPF. No matter how resources are allocated, the company will never be able to produce at this level. There just aren’t enough resources to accomplish this production level.
Points located on the PPF curve represent efficient production since the company is making the best use of all of the resources. Production levels located below the PPF curve can be achieved. However, they show inefficient production. This could be caused by outside factors such as labor or supply shortage.
Points E and F
The opportunity cost for cars is the greatest as we near the edge of the PPF or point E, and the opportunity cost for computers is greatest as we near the other end of the curve or point F.
Final Tip:
Remember that the PPF shows the trade-offs involved in using limited resources. Points on the curve represent efficient production, points below the curve represent inefficient production, and points above the curve cannot be achieved with the available resources.
Mankiw, N. G. (2024). Principles of Economics. Cengage Learning.
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