ECONOMICS

FATHER OF ECONOMICS
ADAM SMITH (1723 1790)
(FATHER
OF ECONOMICS)

Production Possibility

Introduction

Every decision has an opportunity cost the cost in foregone opportunities.

Introduction

A production possibility curve is used to illustrate opportunity cost.

The Production Possibility Curve

A production possibility curve

It represent the boundary between attainable and un attainable levels of production for a given set of resources and technology.

Illustration

EX: Mr.X having one lack r.f. He can produce any one of the following things.(choices) computer Mobile phone Suppose he selected computer then opportunity cost is mobile phone. Suppose he selected mobile phone then opportunity cost is computer

Illustration

Choice : he can produce Computer only Mobile phone only Computer and mobile phone

Example
Mr. X a producer, he have 10 lack r.f and 100 labors. he can choose the following opportunities. The possibilities given below.
possibilities A B No of computer 0 2 No of Mobil phone 10 8

C D
E

3 4
5

6 3
0

A Production Possibility Curve for a Society

10 9 8 7 6 5 4 3 2 1 0
(10,0)

(8,2)

(6,3)

(3,4)

(0,5)

COMPUTER
McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

10 (10,0) Unattainable 9 (8,4) (8,2) 8 7 . (6,3) Attainable 6 Under Utilization 5 of 4 Resources (4,2) (3,4) 3 2 1 (0,5) 0 1 2 3 4 5 6 7 8
COMPUTER

The Production Possibility Curve

A production possibility curve

It represent the boundary between attainable and un attainable levels of production for a given set of resources and technology.