Production Possibilities Curve

If you have a bunch of metal, you can coil it and make 100 slinkies, or you can use it to make two awesome robots. The Productions Possibilities Curve is the tradeoff between using your metal to make some combination of slinkies and robots. If you're producing a combination of slinkies and robots below the curve, that means you could be making more of either one, so you're not using your resources efficiently. That's why sometimes the curve is called a frontier, because you can continue increasing your production of either (and therefore your coolness on the schoolyard) up until you're producing on the curve. Maybe Willy Wonka was onto something with all of that “pure imagination” talk.

The people in charge of making stuff have to survey their production, like your dog surveys the yard every morning as if she’s never seen it before, imagining all of the possibilities. But, of course, firms aren’t imagining they can make unlimited amounts of stuff. They’re imagning real possibilities...things they could do with the resources they have on hand. This imaginary world (too constrained for fun stuff like triple rainbows, unicorns, and trees that grow video games) is the stuff of the production possibilities curve.

The production possibilities curve, also known as the production possibilities frontier, shows the different combinations of two goods that can be made with a given bucket of stuff we already have: labor, inputs, hardware, etc. We’ll call it the PPC for short, to save ourselves some precious breath.

The PPC usually bows outward. On the x-axis is one good, and on the y-axis is another good. So every point on the graph (not just the curve, the whole box) is a different combination of two things. The curve tells us what our best options are.

A curve is a nifty tool because it shows us all the info, but without all the numbers. It’s also handy because, unlike a table, a curve is “continuous,” just as there are an infinite amount of numbers between 0 and 1. If we missed an option in our table, we won’t miss it in the curve because, well...it’ll be part of the curve.

We also like the curve because it tells us the future, kinda. Like a fortune teller, but...at least 20% more accurate.