1. Production
Possibilities
Function
Academic Decathlon Lesson 4
Berryhill Economics
2. Recall
Opportunity cost is the value of the best
forgone alternative
3. PPF
The production possibilities frontier (PPF) is
a diagram that shows production
combinations available to an economy
given finite factor inputs and technology
It is a model economists use to illustrate
the concept of opportunity costs
4. Simple Linear Model
Say you are a house painter and you and
your crew can paint either 20 small houses
or 10 large houses in a week. You can
also paint a number of combinations of the
two.
It takes the same amount of time to paint
one large house as it does to pain 2 small
houses.
5. Simple Linear Model
So what is the opportunity cost of painting
one large house?
What is the opportunity cost of painting two
small houses?
8. Simple Linear Model
All points on the curve are said to be
efficient because they represent the
maximum number of houses that can be
painted with available resources and
technology
You could paint any combination of houses
on or inside the PPF
9. Simple Linear Model
These points inside the model are attainable, but
inefficient—you are not working up to your
capabilities.
Points outside of the PPF are unattainable and
cannot be reached due to the lack of resources
required to reach those points.
You could increase your PPF if you increase your
factors of production, or resources.
10. Non Linear Model
Most real world examples are curved when they
are put on a PPF. This is because of the law of
increasing opportunity costs.
Law of increasing opportunity costs states that as
the production of anything rises, the opportunity
cost of forgone production will eventually
increase.
It gets harder and harder to produce as you
increase production. It will cost more.