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Deriving production–possibility frontier (
Explanation of Solution
Production–possibility frontier is the combination of different combinations of two goods that a country can produce, while all the resources are utilized. Assume that a country is producing two goods say X and Y. Then, the given Table (1) shows different combinations of goods that a country can produce with fully utilized resources as shown below:
Table 1
Combination | Good X | Good Y |
A | 10 | 0 |
B | 5 | 5 |
C | 0 | 10 |
Use the given table to depict the production–possibility frontier as shown below:
In Figure 1, the horizontal axis represents good X and the vertical axis represents good Y. In the first combination, the country can produce 10 units of good X and 0 unit of good Y. In the second combination, the country can produce 5 units of both the goods. In the third combination, the country can produce 0 unit of good X and 10 units of good Y. The country can produce any of the given combinations of goods. These combinations of goods form production–possibility frontier.
Production–possibility frontier (PPF): Production–possibility frontier or PPF curve shows the combination of the two commodities that the country produced efficiently using the given technology.
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Macroeconomics (Book Only)
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