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Production Possibility Curve (PPC)

Production Possibility Curve (PPC) mirrors distinct combinations of two goods that can be produced in an economy, with given resources and accessible technologies. Production Possibility Curve is based on the fact that, if an economy desires to produce extra units of one good it will surely have to sacrifice the production of the other good by some units.

Production Possibility Schedule

To illustrate PPC curve foremost step is to develop Production possibility schedule which represents distinct combinations of two goods in a tabular form.

Production Possibility Number of TV (In millions) Number of Radio (In millions)
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Fig. Production possibility schedule

For example, in an economy both TV and Radio are produced. If in case the economy wishes to increment the production of TV it will have to cut down the production of Radio. At point A, production of Radio is maximum i.e. 85 whereas that of TV is zero. While at point E production of TV is maximum i.e. 80 and radio is zero. Further, points B, C and D highlight distinct combinations of two goods i.e. TV and radio in which the production of one has to be brought down to achieve additional units of other.


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Fig. Production Possibility Curve (PPC)

Assumptions of Production Possibility Curve

• The tine period remains constant all the through the curve.
• The techniques of production are constant.
• The factors and resources of production are fixed.
• An economy can produce only two goods from the provided resources.
• There prevails the situation of full employment in an economy.
• The law of increasing cost or the law of diminishing returns prevails throughout the production.

It is said that the production possibility curve can aid the economy to cope up with its central problems to great extent.

Opportunity Cost

In simple terms, opportunity cost can be expressed as the cost we pay when we choose one good over the other available good. Additionally, it is the cost of sacrificing the next best substitute at the moment of making a preference. Opportunity cost can be efficiently applied to several concepts such as production possibilities, consumer choice, time management, career choice, cost of capital etc.

For instance, if a consumer can either purchase 10kgs of wheat or 5kgs of rice. In such a condition the opportunity cost of purchasing 1 kg of rice is 2kgs of wheat.

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