The Production Possibility Curve/Frontier/Boundary

A graphical representation of a country’s resources used in the production of

two goods.
All points along the curve show combinations of the two goods that can be produced using all
the resources
Areas within/under the curve shows inefficient combination assuming all resources are not
used up; and
Combinations beyond/above the curve are considered to be Unattainable to the extend that
there are insufficient resources;
The PPC slopes downward from left to right reflecting/measuring the Marginal Rate of
Transformation (MRT) i.e. the rate at which one good is given up in order to produce one extra
unit of the other.

(Y) Efficient UNATTAINABLE

efficient

Good Y efficient
Inefficient
efficient

Efficient

0 Good X (X)

Efficiency: All Resources are used

Inefficiency: Resources are not used to full capacity.
Unattainable: There is not enough resource to achieve that level of production
 (Y) BOW Shaped PPC depicts

Increasing Opportunity Cost/Decreasing Returns

For every extra unit produced in one good
Good Y The opportunity cost in terms of the other
increases

Good X (X)
(Y) STRAIGHT LINE PPC depicts

Constant Opportunity Cost/Constant Returns

To produce an extra unit of one good
Good y the Opportunity Cost in terms of the other
Remains the same

Good X (X)
( Y) CONVEX to the Origen depicts

Decreasing Opportunity Cost/Increasing Returns

For every extra unit of one good produced, the opportunity cost
Good Y in terms of the other decreases

0 Good X (X)
 (Y)
50

48 A

Y 28 Y
20 B
12

Good Y X 11
(Bread) Y
9 C
X 6
0 12 24 30 32

Good X ( Cakes X units ( X0)

The change in
OPP(x) = change in X/change in Y OPP(y) = change in Y/change in X

X Y
OPP(x) = OPP(y) =
Y X
Opportunity Cost of X Opportunity Cost of Y

The result for the formula above must be expressed as a RATIO indicating the
amount of units that must be forgone of one good in order to obtain an extra unit
of the other.
In order to achieve the above :
- divide the numerator by itself which must equal to one (1); i.e. the extra unit
gained .
- divide the denominator by the numerator which expresses the amount of unit
foregone from the other.

Using the Diagram above we can look at an example

1. Calculate the Opportunity cost of producing an extra unit of Cake from point:
- A-B
- B–C
- C–B
- B-A