We will generally draw production possibilities curves for the economy as smooth, bowed-out curves, like the one in Panel b. This production possibilities curve shows an economy that produces only skis and snowboards. Notice the curve still has a bowed-out shape; it still has a negative slope.
Notice also that this curve has no numbers. Economists often use models such as the production possibilities model with graphs that show the general shapes of curves but that do not include specific numbers. As we combine the production possibilities curves for more and more units, the curve becomes smoother.
It retains its negative slope and bowed-out shape. In Panel a we have a combined production possibilities curve for Alpine Sports, assuming that it now has 10 plants producing skis and snowboards. Even though each of the plants has a linear curve, combining them according to comparative advantage, as we did with 3 plants in Figure 2.
In drawing production possibilities curves for the economy, we shall generally assume they are smooth and "bowed out," as in Panel b. This curve depicts an entire economy that produces only skis and snowboards. Skip to main content. Side panel. Log in or Sign up. Getting Started. Discussion Forums. Course Introduction. Unit 1: Introduction to Economics. Unit 2: Supply and Demand. Unit 3: Markets and Individual Maximizing Behavior. Unit 4: The Consumer.
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How much of either good the company chooses to make depends on a number of economic factors. The curve is bow-shaped for a few reasons. Reallocating capital, such as labor and machinery, toward the production of a new item is often costlier than producing just one item.
A business also achieves economies of scale when it focuses exclusively on its core competencies, thereby improving its ability to produce just one item instead of a combination of two. A PPF indicates the points at which the business is producing goods most efficiently. Any point along the curve shows efficient production, whereas any point outside of the curve indicates that the business could allocate resources in a way that better serves it. To produce at a point on the curve, the business typically shifts its resources away from producing one good and more to the second good.
The rate of transformation changes depending on the current production schedule. If, for instance, the business produces almost entirely on its bread production, making one unit of cheese requires expending more resources than if it produced a mix of the two.
The PPF may retract or expand depending on circumstances. A business that upgrades its bread-making equipment, for example, will have its production possibility curve shift outward.
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