The problem of choice between relatively
scarce commodities due to limited productive resources with the society can be illustrated with the help of a geometric device, is known as production possibility curve. Production Possibility curve shows the menu of choice along which a society can choose to substitute one good for another, assuming a givenstate of technology and given total
resources.
The explanation and analysis of production possibility curve is based upon certain assumptions, some of them are following:
(i) The time period does not change.It remains the same throughout the curve.
(ii) Techniques of production are fixed.
(iii) There is full employment in the economy. iv)Only two goods can be produced from the given resources.
V) Resources of production are fully
mobile.
vi) The factors of production are given
in quantity and quality
vii) The low of diminishing returns
operates in production.
Every production possibility curve is
based upon these assumptions. If some of
these assumptions changes or neglected,then it affects the nature of production possibility curve. To draw this curve we take the help of
production possibilities schedule, as
shown below.
Production possibilities schedule:
This schedule suggests that if all resources are thrown into the production of food,a maximum of 500 tons of food can be
produced, given the existing technology.If on the other hand, all resources are instead used for producing cars, 25 cars can be produced. In between these two extreme possibilities exist. If we are willing to give up some food, we can have some cars.
We can obtain a production possibility
curve by drawing production possibilities
schedule graphically. The quantity of food is shown on x-axis and the number of cars is shown on y-axis, the different six production possibilities are being shown as point P1, P2, P3, P4, P5 & P6.
