Answer to Question #100934 in Microeconomics for Aman

Question

What is production possibility curve?explain its main features?

Answer 1

Production possibility curve is a graphical representation of the maximum output combination possible of two goods or services which an economy may achieved when all the resources are efficiently and fully employed. It illustrates opportunity cost and trade-offs when producing two goods. The curve also shows effects of the growth in the economy.

The main features of production possibility curve are;

It has two axes: The production possibility curve has two axes with each of them representing a good which a nation produces such as consumer goods and capital goods.

It has one curve: Production possibility curve shows all the possible combination which may be produced given current stock of labor, capital, technology and natural resources.

It slopes downwards: In a production possibility curve, inverse relationship exists between the changes in one commodity’s quantity and changes in the other commodity’s and thus the curve slopes downward from left to right.

It is concave shaped: Production possibility curve is concave shaped due to the increasing marginal opportunity costs.

Reference

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/every-graph-used-in-ap-macroeconomics/a/the-production-possibilities-curve