Production Possibility Curve

The choices that society must take are often presented in terms of production possibility curve. The production possibility curve is related to the concept of opportunity cost that you were introduced earlier. Opportunity cost can be seen numerically with a production possibility table - a table that lists a choice's opportunity costs by summarizing what alternative outputs you can achieve with your inputs. Where output - a result of an activity, input - is what you put into a production process to achieve an output.

The information in the production possibility table can be presented graphically in a diagram called a production possibility curve. A production possibility curve is a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs. It is a graphical representation of the opportunity cost concept. A production possibility curve is created from a production possibility table by mapping the table in the two-dimensional graph. The downward slope of the opportunity cost curve represents the opportunity cost concept - you get more of one benefit only if you get less of another benefit.

The production possibility curve demonstrates that:

1. There is a limit to what you can achieve, given the existing institutions, resources, and technology.

2. Every choice you make has an opportunity cost. You can get more of something only by giving up something else.

The table contains the information on the trade -off between the production of the guns and butter. This information has been plotted on the graph. As we move along the production possibility curve from A to F, trading butter for guns, we get fewer and fewer for each pound of butter given up. That is the opportunity cost of choosing guns over butter increases as we increase the production of guns. This concept is called the principle of increasing marginal opportunity cost. The phenomenon occurs because some resources are better suited for the production of butter than for the production of guns, and we use the better ones first. 

% of resources devoted to production of guns	Number of guns.	% of resources devoted to production of butter.	Pounds of butter.	Row.
0	0	100	15	A
20	4	80	14	B
40	7	60	12	C
60	9	40	9	D
80	11	20	5	E
100	12	0	0	F

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