The production possibilities frontier (PPF) indicates the maximum output combinations of two goods or services an economy can achieve with full employment of available resources. It assumes resources and technology are fixed. The opportunity cost refers to the next best alternative forgone in making a choice. It provides a basis for decision making, price determination, and efficient allocation of resources by analyzing the costs of all alternatives.

1. Production possibilities frontier

2. Production possibilities frontier
Definition
Production possibilities frontier (PPF), also
known as production possibility curve,
indicates the maximum output combinations of
two goods or services an economy can achieve
by fully using all available resources
efficiently.

3. In business, the Production Possibility Curve (PPC) is
applied to evaluate the performance of a
manufacturing system when two commodities are
manufactured together

4. Assumptions:
• Full employment
• Fixed resources
• Fixed technology ( No Change in Tech..)
• Two goods only produce

5. production possibility curve
Table
Army Truck 12 10 6
CAR 0 1 2

7. Opportunity cost
Definition
Opportunity cost refers to the value of the other
choice sacrificed while choosing a better or
suitable alternative. It is also termed as
alternative cost.

8. Examples of Opportunity Cost
1. Someone gives up going to see a movie to
study for a test in order to get a good grade. The
opportunity cost is the cost of the movie and the
enjoyment of seeing it.
2. The opportunity cost of taking a vacation instead of
spending the money on a new car is not getting a
new car.

9. SIGNIFICANCE OF OPPORTUNITY COST

10. Significance of Opportunity Cost
1. Base for Decision Making: Opportunity cost
provides support for making an appropriate choice
while selecting one out of many available
alternatives.
2. Price Determination: Based on the expenses
incurred in the procurement of any goods or services
along with the cost which may have been committed
to acquiring alternative options, the price of the
products or services is determined.

11. Significance of Opportunity Cost
3. Efficient Resource Allocation: It helps in
investing the resources in the right opportunity by
analyzing the opportunity cost of all the
alternatives.
4. Remuneration Decisions: In organizations, it
played a crucial role in determining the expected
value an employee would create for the
organization. It is acquired after his/her
comparison to the other alternatives available, and
thus, personnel remuneration is considered
accordingly.