Production Possibility Curve and Its Features in Economics

In business, a production possibility curve (PPC) is constructed to analyse the performance of a manufacturing system when a mix of products is manufactured simultaneously. The management employs this graph to plan the ideal percentage of manufacturing commodities to minimise waste and expenses while boosting earnings. If all of a company’s resources are put to excellent use, this diagram or graph may show how many units of a product it can generate each day.

The X-axis shows the most significant production probability for a particular commodity, while the Y-axis shows the maximum manufacturing probability for the other commodity. Showing how many things can be made with limited resources while halting the use of technology is the use of the Production Possibility Curve.

Hypotheses of the Production Possibility Curve

As the market continuously changes, the production curve is dependent on assumptions –

• According to the production possibility curve, the economy should contain just two items representing the whole market.
• People presume that the economic model for the supply of resources will never change.
• The assumption is that the technology or manufacturing methods for a mix of products remain the same.
• According to the production curve, it is assumed that all of the resources are used effectively and thoroughly. These, however, aren’t utilised or tapped into totally.

Characteristics of Production Possibility Curve

The following are the characteristics of the production possibility curve –

• From left to right, the PPC curves downward. The production must be decreased to enhance one commodity’s output or a mix of products.
• An increase in marginal transformation causes the PPC to be concave to the graph’s beginning.
• As per the economic model, the form of the PPC will also change depending on whether the expenses of manufacturing are rising, falling, or remaining the same.
• Using the PPC, you can see the many permutations of output that may be achieved with the most effective resources. If you don’t know your preferences, it’s impossible to determine which points are the most efficient allocative.

The curve of production potential has become an essential feature of current economic theory. It is pretty helpful to establish whether or not the available resources are being wholly used while maintaining the technology in use or what products may be created using the same. It aids in formulating the fundamental issue of economic production and service of a mix of products. It allows the economy to pick what things to create and in what quantities. It is critical because it demonstrates how the economy’s resources might be used more effectively.

The Different Types of Production Curves

There are three kinds of production curves for a mix of products. Concave and convex lines, as well as a straight line. There will be less production of one thing and more of the other at all times while the line is sloping downwards. This is due to the curve’s negative gradient. Using this curve is not practical since it doesn’t reflect the actual market or economy.

The concave curve is the second one. A decline in one good production in exchange for a rise in the production of another may be seen in the graph, which displays a rising ratio. Scarcity, opportunity cost, efficiency, and inefficiency may all be shown and illustrated using the production possibility curve. The market or economy can be shown more accurately using this curve.

The convex curve has a declining ratio, suggesting that we need to reduce less of an item to generate more. This falling number will retain the reduction as a moving component along the curve. In the actual world, there is no such curve.

Curves showing the potential for production

Let us understand this topic better by taking the examples of rice and wheat. According to an estimate, 10 Lakh tonnes of wheat may be produced using the provided resources. Let’s imagine that if all resources are dedicated to rice cultivation, 4 lakh tonnes of rice may be harvested. Different goods can be produced in various combinations if the producer decides to make both. There will be less of one product produced if more are made. Using this data, a graph will highlight how resources and technology may be used to produce a specific product. It is impossible to combine the output of two items at any point on the production potential curve for a mix of products outside the curve’s line.

Conclusion

To summarise, it can be said that the generated products and services must be effectively governed and managed in a systematic and organised manner to achieve efficiency. When resources are misallocated, the economy might shrink and experience loss. A lack of resources for a mix of products and inefficiencies in the correct technology deployment in manufacturing might deteriorate the economy. Therefore, when manufacturing goods and providing services, the production possibility curve should be used to estimate the production level.