Graphically derive and interpret a PRODUCTION POSSIBILITY FRONTIER

Graphically derive and interpret a PRODUCTION POSSIBILITY FRONTIER. NOTE: remember to list and interpret the assumptions upon which the derivation process is based.

Solutions

Expert Solution

Answer: production possibility frontier is a locus of two goods which shows the various combinations of two goods and can be produced with given resources and technology.

Assumption

1. Only two goods can be produced

2. Resource and technology is constant

I m showing it with the help of table.

Production possibilities	Cloths in million meters	wheat in million quintals	marginal opportunity cost of cloth (in wheat)
A	0	15	-
B	1	14	1
C	2	12	2
D	3	9	3
E	4	5	4
F	5	0	5

In this table if resources can be used only for the production of wheat then clothes will be produced zero quantity at point A. If resources can be used only for the production of cloths then it will produced 5 meters cloths and 0 quanits of wheat . In between from A TO F there are various combinations of both goods which gives the same level of output.

I m attaching a photo of figure . please have a look

In this figure, any point on ppc is the optimum allocation of resources and there will be any production inside the curve then resources will be underutilized and if there will be production anywhere outside the curve or ppc then resources will be over utilized .

Rahul Sunny answered 1 year ago

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