PPF Overview

DEFINITION of ‘Production Possibility Frontier – PPF’

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.

Production Possibility Frontier (PPF)

As indicated on the chart above, points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X demonstrates the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs.

BREAKING DOWN ‘PRODUCTION POSSIBILITY FRONTIER – PPF’
Among others, factors such as labor, capital and technology will affect where the production possibility frontier lies. The PPF is also known as the production possibility or transformation curve.

Read more and watch an overview video at:

http://www.investopedia.com/terms/p/productionpossibilityfrontier.asp

Leave a Reply

Your email address will not be published. Required fields are marked *