Question # 3

What Is Meant By A Production Possibility Frontier? Illustrate Your Answer. What Other Names
Are Used Instead Of Production Possibility Frontier?

Production Possibility Curve

Definition
Graphical representation of the alternative combinations of the amounts of two goods or services that an
economy can produce by transferring resources from one good or service to the other. This curve helps in
determining what quantity of a non-essential good or a service an economy can afford to produce without
jeopardizing the required production of an essential good or service. Also called transformation curve
The Production Possibility Frontier
Consider the case of an island economy that produces only two goods: wine and grain. In a given period
of time, the islanders may choose to produce only wine, only grain, or a combination of the two according
to the following table:
Production Possibility Table
Wine Grain
(thousands of bottles) (thousands of bushels)
0 15
5 14
9 12
12 9
14 5
15 0
The production possibility frontier (PPF) is the curve resulting when the above data is graphed, as shown
below:
Production Possibility Frontier

The PPF shows all efficient combinations of output for this island economy when the factors of production
are used to their full potential. The economy could choose to operate at less than capacity somewhere
inside the curve, for example at point a, but such a combination of goods would be less than what the
economy is capable of producing. A combination outside the curve such as point b is not possible since
the output level would exceed the capacity of the economy.
The shape of this production possibility frontier illustrates the principle of increasing cost. As more of one
product is produced, increasingly larger amounts of the other product must be given up. In this example,
some factors of production are suited to producing both wine and grain, but as the production of one of
these commodities increases, resources better suited to production of the other must be diverted.
Experienced wine producers are not necessarily efficient grain producers, and grain producers are not
necessarily efficient wine producers, so the opportunity cost increases as one moves toward either
extreme on the curve of production possibilities

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