![production possibilities frontier production possibilities frontier](http://cf.ppt-online.org/files/slide/4/4vzWuJqlRVUD57pnXFdE1ba6iCjoefH0SgOrhy/slide-15.jpg)
If the country decides to ramp up its sugar production, using the existing fixed resources, it has to lower its pizza production. Also, any point inside the PPF is inefficient because at that point the output is greater than the output that the existing resources can produce.įor example, a country produces pizza and sugar. At an economic level, this is known as the Pareto efficiency, which suggests that, when allocating resources, the choice of one will worse off the other. Hence, the production possibility frontier provides an accurate tool to illustrate the effects of making an economic choice.Īt any given point of a PPF, the company produces at maximum efficiency by fully using its resources. In other words, if one action is chosen, the other action is foregone or given up. Typically, opportunity cost occurs when a manager chooses between two alternative ways of allocating business resources. In that way, it helps managers to determine the most beneficial mix of commodities for the business. The PPF measures the efficiency in which the two goods or services are produced together. Hence, the production of one good or service increases when the production of the other good or service decreases.
![production possibilities frontier production possibilities frontier](https://www.businessstudynotes.com/wp-content/uploads/2018/11/Production-Possibilities-Frontier.jpg)
In other words, if more of good A is produced, less of good B can be produced given the resources and production technology remain constant. Producing one good always creates a trade off over producing another good. What is the definition of production possibilities frontier? The production possibility frontier indicates the maximum production possibilities of two goods or services, assuming a fixed level of technology and only one choice between the two. What Does Production Possibilities Frontier Mean? Definition: Production possibilities frontier (PPF), also known as production possibility curve, indicates the maximum output combinations of two goods or services an economy can achieve by fully using all available resources efficiently.