![]() ![]() Because the production possibilities curve for Plant 1 is linear, we can compute the slope between any two points on the curve and get the same result. The slope of Plant 1’s production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. Producing more skis requires shifting resources out of snowboard production and thus producing fewer snowboards. Producing more snowboards requires shifting resources out of ski production and thus producing fewer skis. The negative slope of the production possibilities curve reflects the scarcity of the plant’s capital and labor. Here, we have placed the number of pairs of skis produced per month on the vertical axis and the number of snowboards produced per month on the horizontal axis. Neither skis nor snowboards is an independent or a dependent variable in the production possibilities model we can assign either one to the vertical or to the horizontal axis. The curve is a downward-sloping straight line, indicating that there is a linear, negative relationship between the production of the two goods. These values are plotted in a production possibilities curve for Plant 1. Combination A involves devoting the plant entirely to ski production combination C means shifting all of the plant’s resources to snowboard production combination B involves the production of both goods. The table in Figure 2.2 gives three combinations of skis and snowboards that Plant 1 can produce each month. It can produce skis and snowboards simultaneously as well. When devoted solely to snowboards, it produces 100 snowboards per month. Suppose the first plant, Plant 1, can produce 200 pairs of skis per month when it produces only skis. We assume that the factors of production and technology available to each of the plants operated by Alpine Sports are unchanged. Ryder’s three plants as a miniature economy and analyze them using the production possibilities model. While even smaller than the second plant, the third was primarily designed for snowboard production but could also produce skis. Two years later she added a third plant in another town. She also modified the first plant so that it could produce both snowboards and skis. The second plant, while smaller than the first, was designed to produce snowboards as well as skis. She added a second plant in a nearby town. Ski sales grew, and she also saw demand for snowboards rising-particularly after snowboard competition events were included in the 2002 Winter Olympics in Salt Lake City. Christie Ryder began the business 15 years ago with a single ski production facility near Killington ski resort in central Vermont. ![]() To construct a production possibilities curve, we will begin with the case of a hypothetical firm, Alpine Sports, Inc., a specialized sports equipment manufacturer. ![]() Producing on Versus Producing Inside the Production Possibilities CurveĬonstructing a Production Possibilities Curve.Movements Along the Production Possibilities Curve.Comparative Advantage and the Production Possibilities Curve.Constructing a Production Possibilities Curve.Further suppose that this technique could not be applied to grain production.\( \newcommand\) Suppose a new technique was discovered that allowed the wine producers to double their output for a given level of resources. Experienced wine producers are not necessarily efficient grain producers, and grain producers are not necessarily efficient wine producers, so the opportunity cost increases as one moves toward either extreme on the curve of production possibilities. In this example, some factors of production are suited to producing both wine and grain, but as the production of one of these commodities increases, resources better suited to production of the other must be diverted. As more of one product is produced, increasingly larger amounts of the other product must be given up. The shape of this production possibility frontier illustrates the principle of increasing cost. A combination outside the curve such as point b is not possible since the output level would exceed the capacity of the economy. The economy could choose to operate at less than capacity somewhere inside the curve, for example at point a, but such a combination of goods would be less than what the economy is capable of producing. #Production possibilities curve full#The PPF shows all efficient combinations of output for this island economy when the factors of production are used to their full potential. ![]()
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