![]() Here, we have placed the number of pairs of skis produced per month on the vertical axis and the number of snowboards produced per month on the horizontal axis. Neither skis nor snowboards is an independent or a dependent variable in the production possibilities model we can assign either one to the vertical or to the horizontal axis. The curve is a downward-sloping straight line, indicating that there is a linear, negative relationship between the production of the two goods. These values are plotted in a production possibilities curve for Plant 1. Combination A involves devoting the plant entirely to ski production combination C means shifting all of the plant’s resources to snowboard production combination B involves the production of both goods. The table in Figure 2.2 “A Production Possibilities Curve” gives three combinations of skis and snowboards that Plant 1 can produce each month. ![]() It can produce skis and snowboards simultaneously as well. When devoted solely to snowboards, it produces 100 snowboards per month. Suppose the first plant, Plant 1, can produce 200 pairs of skis per month when it produces only skis. We assume that the factors of production and technology available to each of the plants operated by Alpine Sports are unchanged. Ryder’s three plants as a miniature economy and analyze them using the production possibilities model. While even smaller than the second plant, the third was primarily designed for snowboard production but could also produce skis. Two years later she added a third plant in another town. She also modified the first plant so that it could produce both snowboards and skis. The second plant, while smaller than the first, was designed to produce snowboards as well as skis. She added a second plant in a nearby town. Ski sales grew, and she also saw demand for snowboards rising-particularly after snowboard competition events were included in the 2002 Winter Olympics in Salt Lake City. Christie Ryder began the business 15 years ago with a single ski production facility near Killington ski resort in central Vermont. To construct a production possibilities curve, we will begin with the case of a hypothetical firm, Alpine Sports, Inc., a specialized sports equipment manufacturer. It is a process of increasing the economy’s ability to produce goods and services.Constructing a Production Possibilities Curve This can only be possible if there is an improvement in the quantity and/or quality of factors of production. This costs will include retraining cost of our workforce and the time consumed in this rellocation.Īny point outside the curve is unattainable unless there is an outward shift of the PPC. Before the rellocation of resources we will have to consider the costs of rellocating these resources between uses. This is known as rellocation of resources. Resources have to be switched from building more Hosipitals to building more Schools. Thus, it is impossible to build more Schools without also building fewer Hospitals. For example Z, shows the possible combinations of School buildings and Hospitals. Government has to move along this curve and decide the best possible combination of goods to produce. If you move to the other end then all the resources would be used to produce Hospitals and not Schools will be there in the economy. In the graph, if all the resources are used to produce Schools then there will be no Hospitals. ![]() Production Possibility curve (PPC) shows the maximum combinations of goods and services that can be produced by an economy in a given time period with its limited resources. Production Possibility Curve/Production Possibility Boundary/Production Possibility Frontierįrom the point of view of an Economy, there is an opportunity cost of using its resources. ![]()
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