Production Possibility Curve

A Production WHAT??

Last week in class we looked at what is economics.

After looking at the definition of economics we saw: decisions, decisions, decisions, decisions - since recourses are limited (We can’t have everything or produce everything all the time). Therefore, if you are a producer of chocolates and soft drinks how many chocolate and soft drinks should you produce given your recourses? This is where the production possibility curve fits in.

A production possibility curve therefore:


• Represents a simple economy;

• only two products are produced;

• resources are limited;

• different combinations are available where one can produce

• producer needs to make a choice – where to produce.


Consider this example:

A producer can choose to produce either chocolate or soft drinks. His schedule of possible production combinations is given below:

Considering the possible production combinations the production possibility curve will look something like this:

If the producer decided to produce 500kg of chocolate, what is the opportunity cost for producing the 500kg of chocolate? (Therefore, how many litres of soft drink does the producer need to give up in order to produce the 500kg of chocolate?)


If the producer produce 500kg chocolate, he produces 600 litres of soft drink. If he produced just soft drinks he would have produced 1000 litres. The producer did not choose to produce 1000 litres, he decided to produce chocolate (500kg). The opportunity cost for the 500kg chocolate is therefore 400 litres of soft drinks (1000 litres – 600 litter).

Remember to watch the tutorial video under Video’s for step by step instructions on what is a production possibility curve and how we calculate opportunity costs.