Production possibilities curve

Production possiblities curve is the range where maximum available resources in the economy are utilized when producing goods. A point inside the curve means that production of a good is possible but it is not very efficient. A poit outside the curve signifies an unattainable production possibility.


The diagram shows the production possibilities curve for tanks and cars using a fixed quantity of resources available in the economy. The movement up or down the curve determines the marginal opportunity cost to produce a good relative to another good sharing the same resource. For instance, if an economy is producing 50 tanks, it can only produce 10 cars at the same time using the available resource in the economy. If, people decide to increase production of cars to 30, the marginal opportunity cost to produce 30 cars would be 10 tanks because the possible quantity of tanks that can be generated with the same available resource is now only 40 down from 50 tanks. This is because resources available to tank building is now being diverted to car production.







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