Production Possibilities Curve (PPC)

16 A
B Z
14
C Unattainable
12 Y
D
10

8
Attainable E
6

2
F
0
12 2 34 45 5
1 3 6

1. The PPC separate the attainable and unattainable parts of it.

2. Points A to F are the best possible combinations of resources to enable full utilization
and to ensure that the country is at full employment.
3. If all the factors of production are used in production of butter, JAYA’s economy can
produce only 5,000 kg of butter and the other hand, if the resources are used to
produced sewing machine, only 15,000 units of sewing machine will be produced.
4. For Example, Point C shows JAYA producing 2,000 kg of butter and 12,000 units of
sewing machines while Point D shows 3,000 kg of butter and 9,000 units of sewing
machine being produced.
5. These combinations of production are attainable, that is, it is possible to produce butter
and sewing machines of this quantity. But, somehow, it shows the waste of resources
and inefficiency since the production had not reached its maximum level. For example,
at any point of Y, only 12,000 units of sewing machines and 1,000 kg of butter. If the
given resources are being fully utilized, the maximum combination of production for
butter would be 2,000 kg whilst 12,000 units of sewing machines will be produce. This
also leads to unemployment
6. Point Z shows the economic concept of scarcity. At this point due to limited resources
and technology, JAYA is unable to meet production. Points outside the PPC are
unattainable. For eg. At the point Z, JAYA wants to produce 16,000 units of sewing
 machines and 5,000 kg of butter, but due to limited state of technology, this cannot be
achieved. When JAYA wants exceed output, there is scarcity.
7. Any points along A,B,C,D,E,F shows choices. JAYA will have to make its choices from
various possible combinations of sewing machines and butter, which will maximize its
satisfaction. Since JAYA cannot produce at point Z, it will choose any points along the
PPC which is both attainable and efficient.
8. Movement from one point to another point (for eg. C to D) reflects the opportunity cost.
JAYA must forgo sewing machines if it wants an additional 1,000 kg of butter. For
example, JAYA needs more butter, so the production will move form point C to point D.
In order to obtain additional 1,000 kg of butter, JAYA has to forgo 3,000 units of sewing
machines. The opportunity cost of producing 1 kg of butter is 3 units of sewing machine.

Movement along the Decrease in quantity Increase in quantity Opportunity cost of

PPC of sewing machines of butter butter

A to B (15-14) 1 1 1
B to C (14-12) 2 1 2
C to D ( 12-9 ) 3 1 3
D to E ( 9 – 5 ) 4 1 4
E to F ( 5 - 0 ) 5 1 5
Table 1: Opportunity Cost of Butter (best forgone alternative)

Movement along the Decrease in quantity Increase in quantity Opportunity cost of

PPC of butter of sewing machines sewing machines

B to A (1-0) 1 1 1
C to B (2-1) 1 2 ½ (0.5)
D to C (3-2) 1 3 1/3 (0.33)
E to D (4-3) 1 4 ¼ (0.25)
F to E (5-4) 1 5 1/5 (0.2)
Table 1: Opportunity Cost of Sewing Machine (best forgone alternative)