Production Possibilities Curve

RecallOpportunity cost is the value of the best forgone alternative

PPCThe production possibilities curve(PPC) is a diagram that shows production combinations available to an economy given finite factor inputs and technology

It is a model economists use to illustrate the concept of opportunity costs

Simple Linear ModelSay you are a house painter and you and your crew can paint either 20 small houses or 10 large houses in a week. You can also paint a number of combinations of the two.

It takes the same amount of time to paint one large house as it does to paint 2 small houses.

Simple Linear ModelSo what is the opportunity cost of painting one large house?

2 Small HousesWhat is the opportunity cost of painting two small houses?

1 Large House

Simple Linear ModelSmallHouses

20 18 16 14

LargeHouses

0 1 2 3

12 10 8 6 4

4 5 6 7 8

2 0

9 10

Simple Linear ModelWe use these points on a graph to find the PPC

Simple Linear ModelAll points on the line are said to be efficient because they represent the maximum number of houses that can be painted with available resources and technology

You could paint any combination of houses on or inside the PPC

Simple Linear ModelThese points inside the model are attainable, but inefficient—you are not working up to your capabilities.

Points outside of the PPC are unattainable and cannot be reached due to the lack of resources required to reach those points.

Simple Linear ModelYou could increase your PPC if you increase your factors of production, or resources.

Non Linear Model