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Production Possibilities Model
The Production possiblity curve shows where an economy should be if it is fully employing its resources. An economy must decide for its self where it wants to be according to where the marginal benefits meet the marginal costs. One will often find capital goods on the Y axis and consumer goods on the X axis. Whilst producing consumer goods will satisfy the people at that given time, producing captial goods will allow the firms to produce more and better quality goods, at a lower price, later.
Operatinginside the PPC clearly indicates that there is no full employment of the resources.
Opportunity cost increases as more capital goods are produces over capital goods and vise versa.
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BjornBorgers |
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| Started By | Thread Subject | Replies | Last Post | ||
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| sadza | opportunity cost | 1 | Feb 21 2009, 12:35 PM EST by Rinaldho | ||
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Thread started: Feb 19 2009, 10:01 AM EST
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How do you explain the concept of opportunity cost using PPC
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| MondGu | Wiki comment | 0 | Aug 22 2007, 8:24 AM EDT by MondGu | ||
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Thread started: Aug 22 2007, 8:24 AM EDT
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This is my first wiki comment, so I'm not quite sure what I'm suppose to say. I find the production possibilities model quite interesting, because prior to the cause I always believed that the higher the benefit the better it is and the more it should be produced. However, in the case of marginal benefits and costs, this isn't the case. With the high marginal benefit, it is tempting to produce a large quantity of the product, which actually decreases the value of such product. For optimal profit, the marginal benefit and marginal cost should be the same.
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