A production possibility curve (PPC) is a diagram which is used to show how resources can be used in order to produce a combination of two goods.
As resources are limited to a fixed amount, they must therefore be divided up between the production of the two goods. If all the resources were used in the production of one good, there would then be no resources left and the production of the other good would be equal to zero.
The PPC diagram can be used to show how much can be produced when resources are used efficiently and also the opportunity cost of increasing the production of one good at the expense of another.
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Key terms:
Opportunity cost – the benefit foregone from choosing the next best alternative.
Productive efficiency – where production occurs at the point where all resources are being used at the lowest possible cost.
Unobtainable point – any point which is beyond the PPC as there are not enough resources to produce this combination of goods.