![]() ![]() Furthermore, The area beyond this curve represents unattainable combinations and area inside the curve shows the inefficient utilization of resources. This curve is known as the Production Possibility or Transformation curve. By combining these points, we get AF curve. Lastly, Point F shows the production possibility of 250 units of butter and no milkshake. Similarly, points B, C, D and E show different combinations of butter and milkshake. Here, The first production possibility is 500 units of milkshake and no butter. In fig, the quantity of butter is shown on X-axis and milkshake on Y-axis. Graphical-Representation: Production Possibility Curve For example, if the United States is producing 30 units of food and 2. For instance, under ‘B’ combination, it is 450 units of milkshake and 50units of butter under ‘C’ combination, it is 360 units of milkshake and 100 units of butter under ‘D’ combination, it is 270 units of milkshake and 150 units of butter and under ‘E’ combination, it is 150 units of milkshake and 200 units of butter. One implication of such a point is that the economy is under-employing its resources. Besides these limits, there are many alternatives possibilities of production of milkshake and butter. ![]() On the other hand, if production is obtained under ‘F’ combination, then 250 units of butter will be produced without any production of milk-shake. The above schedule shows that if production is carried out under ‘A’ combination, then 500 units of Milk-shake alone will be produced without any production off butter. Production Possibility Table for The Production. Moreover, If the producer produces both the goods, then within these limits, various combinations can be produced. For example, the production possibility curves for the production of cattle and motor vehicles in South Africa. On the other hand, if all the resources are used for the production of butter only, then 250 units of butter can be produced. If all the resources are used for making milkshake alone, then 500 bottles of milkshake can be produced. (a) Production possibility curve may be defined as a diagram or graph showing the possible combinations of two commodities that can be produced given a. Suppose, a producer decides to produce only two goods namely, milkshake and butter with the available resource “cow’s milk” and given technology. For example, apples and wheat or capital goods and consumer goods. It is assumed there are only two goods or two sets of goods are produced in the economy.There is neither any improvement nor innovation in technology.The given resources are utilized fully and efficiently. ![]() They can be transferred from one use to another to some extent. The number of factors of production is given and assumed as fixed.“Production Possibility Curve is that curve which represents the maximum amount of a pair of goods or services that can be produced with an economy’s given resources and technique assuming that all resources are fully employed.” Assumptions : Unimax Publications Book’s Solution – PSEB.In the book an example is given of a society that has to choose which combination of beef and allpurpose machines to produce. Usha Publication Book’s Solution – PSEB We begin with a simplification of economic reality, one that imagines an economy creating only two goods.A decision to produce at a point such as D indicates that a decision has been made to allocate resources in such a way that this specific combination is produced. Competing uses suggests that the same resources could be used to produce different things. As they move from point D to point C, they are allocating more resources to the production of laptops and fewer to the production of mobile phones.įrom this one can also conclude that the question of what to produce is in fact a decision about how resources should be allocated among their competing uses. The people of Zanadu are facing a trade-off – to have more laptops they must give up some mobile phones. Because more laptops are produced, fewer mobile phones are produced. What is the difference between points D and C? If we examine the table and the diagram, we see that at point D, 2 000 laptops and 24 000 mobile phones are produced, while at point C, 3 000 laptops and 18 000 mobile phones are produced. This means that the economy is willing to give up the same amount of Y for the same additional unit of X. The opportunity cost also remains constant (constant returns). Thus, the production possibility curve becomes linear or straight line. Which combination (A, B, C, D, E or F) consumers desire is an important issue in economics, and something we will return to later in the course. unchanged as we moved downwards the curve from left to right. ![]()
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