Production Possibility Frontier

What is a PPC?

The production possibility frontier/curve, shortened to PPC/PPF is a graph that shows the focus of a country or firm's production.
A PPC graph can show how much of resources are allocated to two different options.

A PPC can show the resource allocation towards producing certain types of goods such as consumer goods or investment goods for a country or certain types of specific goods for a firm.

The y-axis of the graph represents how much of one good is being made, and the x-axis represents how much of the other good is being made.
A curve or straight line stretches from a point on the y-axis to the x-axis.

A point can be placed on or inside the curve.
There is no ideal point on the curve and all points have their own benefits and downsides depending on the circumstances.
Most economies are inside the curve, as being a point directly on the curve means that you are using all of your resources.
This would mean that everything is working 100% efficiently with no problems, which doesn't happen in real life.
All points inside the curve are inefficient.
When changing the type of goods produced, there is always some loss when converting.
This loss is the opportunity cost when changing resource allocation.
The opportunity cost can be more or less depending on the similarities of the goods being produced.
Differentiated goods have increasing opportunity costs as more resources have to be put into retraining and restructuring.
Similar goods have little or constant opportunity cost, where the only opportunity cost is producing less of one good when resources are allocated to produce more of the other.

Example

Workers specialized in driving busses will need to be retrained in order to drive boats.
However, workers trained in baking cakes won't need special retraining to bake bread instead.

Production is limited to being on or within the curve, as the curve represents the limits of our resources.
For the production to be increased, there needs to be growth.
There are two types of growth, actual growth and potential growth.

Actual growth is the most common type of growth that occurs in reality.
Actual growth is when waste is reduced, and resources are used more efficiently.
This can be seen on a PPC as the point inside the curve moving closer to the edge of the curve.

To increase the size of the curve, the production possibilities must be increased.
This is done through potential growth.
Potential growth is achieved by increasing the amount of resources such as materials and workforce.