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.
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.
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