Production Possibility Frontier (PPF)

Question 1

What is a Production Possibility Frontier?

Answer 1

A diagram that shows the possible output levels of two goods that can be produced using the economy’s current resources or factors of production.

Question 2

When will the PPF be a straight line?

Answer 2

If all the economy’s resources are equally productive when being used to make each product, the PPF will be a straight line.

Question 3

When will the PPF be a curve?

Answer 3

In many cases however, the PPF will not be a straight line because the law of diminishing marginal returns is at work. This law states that, given a fixed amount of other resources to work with, the output of a new worker, for example, will be less than the output of the previous workers, as adding extra workers dilutes the amount of capital equipment available to each worker and the new workers may not have the appropriate training or skills.