PRODUCTION POSSBILITY CURVE

A production possibility curve (PPC) is a graphical or diagrammatic illustration of all possible bundles or combinations of two types of goods which a society can produce using its present level of resources and given the existing level of technology.

Table of Contents

The idea behind the production possibility curve is that in order to produce a particular commodity, the production of another commodity has to be sacrificed.

For example, the production possibility curves for the production of cattle and motor vehicles in South Africa.

Production Possibility Table for The Production of Cattle and Motor vehicles by South Africa

Get A Free USA Scholarship, Visa & Accommodation

Possible combination head of cattle no of motor vehicles

A 200 0

B 170 30

C 100 70

D 80 130

E 40 150

Study in US, Canada, UK, Germany For Free

F 0 180

The table shows the alternative open to South Africa to substitute the production of cattle for vehicle on a monthly basis, assuming a given state of technology and a given total of resources.

Production Possibility curve for the Production of cattle and motor vehicle in South Africa.

INTERPRETATION OR POINTS TO NOT FROM THE GRAPH

Points A to F on the graph indicate efficient use of resources
At points O and P (outside the curve), production is not feasible. Production of these points is not feasible due to the limited resources and technology.
At point K and L (inside the curve), production is feasible. It represents where resources are not efficiently utilized.
The downward slope of the PPC indicate that there is an opportunity cost of producing more of one type of commodity and less of the other due to limited resources and technical know how

LAW OF DIMINISHING RETURNS OR VARIALBE PROPORTION

This law refers to a short run production situation. The law of diminishing returns states that as more of the variable factor (e.g. labour or capital) is added to other factors which are constant (e.g. land), outputs will eventually increase at a decreasing rate.

The law of diminishing returns follows three stages, these are;

Increasing returns
Constant returns
Decreasing returns

CONCEPT OF TOTAL PRODUCT (TP), AVERAGE PRODUCT (AP) AND MARGINAL PRODUCT (MP)

TOTAL PRODUCT (TP): Total product refers to the total quantity of goods produced at a particular time as a result of the use of all the factors of production.

Symbolically written as TP = AP X Q

total Point of diminishing returns

output TP

AVERAGE PRODUCT (AP): Average product is defined as the output per unit of the variable factor (labour or capital) employed. This is obtained by dividing the total output by the number of labour or capital employed.Symbolically written as AP:TP/Q

3.MAGINAL PRODUCT (MP): This is the additional product produced as a result of the application of additional unit of a variable factor when all other factors are fixed.

Unit of labour

Symbolically written as MP = CHANGE IN TP/CHANGE IN VARIABLE FACTOR =

TP₁ – TP_O

Q₁ –Q_O

TOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT

VARIABLE UNIT FIXED FACTOR TOTAL PRODUCT AVERAGE PRODUCT MARGINAL PRODUCT

OF LABOUR hectares of land (Kg) (Kg) (kg)

1 3 8 8 ……

2 3 18 9 10

3 3 36 12 18

4 3 48 12 12

5 3 55 11 7

6 3 60 10 5

7 3 60 86 0

8 3 56 7 -4

RELATIONSHIP BETWEENTOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT.

The relationship between total products, average product and marginal product can be demonstrated by a graph. Both TP and MP initially rise. The TP curve remains at maximum point when MP is zero. To declines after MP = 0 and MP afterwards assumes negative values.

QUESTIONS