Question

Creating Production possibilities schedules curves

Answer 1

Answer: It is a Production Possibilities Curve (PPC) or a Production Possibilities Frontier (PPF).

(Please refer to attached picture)

Explanation: The schedule provided in your question does not require you to draw up a demand and supply graph, but requires you to create a production possibilities curve as shown in the picture I attached. Please note that the picture is not drawn to scale, but just a free hand sketch. Nonetheless, the interpretations would prove very useful.

Let me define in the simplest of terms as much as possible. A production possibilities curve is a curve which shows you every possible combination of production in an economy using up all available resources. It assumes that that there are only two commodities to be produced, hence the curve shows you all the available combination of producing commodities A and B at any point in time with all the factors of production fully utilized. In other words, the curve shows you how many units of Running shoe inserts and Hiking boots inserts you will need to produce simultaneously to maximize profit.

Upon careful observation, at point A, the decision is to produce 10 units of hiking boots inserts and none of running shoe inserts. However, point B shows a different decision which was to produce 3 units of running shoe inserts and 9 units of hiking boots inserts. This implies that not producing any unit of running shoe inserts might not be the best after all, hence the decision to combine 3 units and 9 units.

Note also that both points A and B lie on the curve. This means all resources of production are fully utilized or employed. Point C falls beneath the curve and this means producing at this point is not optimal as the resources for production are not fully utilized or employed. Then point D falls outside of the curve, and production at that point is not possible because it is beyond the available resources for production. Production at point D is only possible if all factors or resources of production are increased.

Another thing to note is that, either of the two variables can be placed on either of the two axes (x axis or y axis). The attached picture has the running shoe inserts plotted on the x axis and the hiking boots inserts plotted on the y axis. It can be the other way round, provided the corresponding figures are plotted correctly, then the graph would always give the same results.

In summary, the PPC gives you all possible options and as the economist it is up to you to decide at what point it would be most profitable to produce both commodities.