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PRODUCTION POSSBILITY CURVE

economics

A production possibility curve (PPC) is a graphical or diagrammatic illustration of all possible bundles or combinations of two types of goods which a society can produce using its present level of resources and given the existing level of technology.

The idea behind the production possibility curve is that in order to produce a particular commodity, the production of another commodity has to be sacrificed.

For example, the production possibility curves for the production of cattle and motor vehicles in South Africa.

Production Possibility Table for The Production of Cattle and Motor vehicles by South Africa

Possible combination              head of cattle              no of motor vehicles

A                                             200                              0

B                                             170                              30

C                                             100                              70

D                                             80                                130

E                                              40                                150

F                                              0                                  180

The table shows the alternative open to South Africa to substitute the production of cattle for vehicle on a monthly basis, assuming a given state of technology and a given total of resources.

Production Possibility curve for the Production of cattle and motor vehicle in South Africa.

 

INTERPRETATION OR POINTS TO NOT FROM THE GRAPH

  1. Points A to F on the graph indicate efficient use of resources
  2. At points O and P (outside the curve), production is not feasible. Production of these points is not feasible due to the limited resources and technology.
  • At point K and L (inside the curve), production is feasible. It represents where resources are not efficiently utilized.
  1. The downward slope of the PPC indicate that there is an opportunity cost of producing more of one type of commodity and less of the other due to limited resources and technical know how

 

LAW OF DIMINISHING RETURNS OR VARIALBE PROPORTION

This law refers to a short run production situation.  The law of diminishing returns states that as more of the variable factor (e.g. labour or capital) is added to other factors which are constant (e.g. land), outputs will eventually increase at a decreasing rate.

 

The law of diminishing returns follows three stages, these are;

  1. Increasing returns
  2. Constant returns
  3. Decreasing returns

CONCEPT OF TOTAL PRODUCT (TP), AVERAGE PRODUCT (AP) AND MARGINAL PRODUCT (MP)

  1. TOTAL PRODUCT (TP): Total product refers to the total quantity of goods produced at a particular time as a result of the use of all the factors of production.

Symbolically written as TP = AP X Q

total                                                        Point of diminishing returns

output                                                                          TP

  1. AVERAGE PRODUCT (AP): Average product is defined as the output per unit of the variable factor (labour or capital) employed. This is obtained by dividing the total output by the number of labour or capital employed.Symbolically written as AP­:TP/Q

Y

AP

AP

3.MAGINAL PRODUCT (MP): This is the additional product produced as a result of the application of additional unit of a variable factor when all other factors are fixed.

MP

Unit of labour

MP

 

Symbolically written as MP = CHANGE IN TP/CHANGE IN VARIABLE FACTOR =

TP1 – TPO

Q1 –QO

 

TOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT

VARIABLE UNIT           FIXED FACTOR       TOTAL PRODUCT   AVERAGE PRODUCT   MARGINAL PRODUCT

OF LABOUR        hectares of land       (Kg)                              (Kg)                              (kg)

1                                  3                      8                                  8                                  ……

2                                  3                      18                                9                                  10

3                                  3                      36                                12                                18

4                                  3                      48                                12                                12

5                                  3                      55                                11                                7

6                                  3                      60                                10                                5

7                                  3                      60                                86                                0

8                                  3                      56                                7                                   -4

RELATIONSHIP BETWEENTOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT.

The relationship between total products, average product and marginal product can be demonstrated by a graph. Both TP and MP initially rise. The TP curve remains at maximum point when MP is zero. To declines after MP = 0 and MP afterwards assumes negative values.

QUESTIONS

  1. Write short note on (a) firm (b) plant (c) industry

Tonnes of fertilizer applied                      total product in bags              marginal product

0                                              1000                                        …….

1                                              1100                                        100

2                                              1250                                        150

3                                              1500                                        250

4                                              ……..                                         400

5                                              ……..                                         250

6                                              …….                                          125

7                                              2350                                        ……..

8                                              2380                                        ……..

9                                              2330                                        ……..

 

See also

ECONOMIC REFORM PROGRAMS | EFCC, ICPC, NAFDAC & SON

CURRENT ECONOMIC PLANS | MDGs, NEEDS & VISION 2020 (GOALS, VISIONS & OBJECTIVES)

INTERNATIONAL ORGANIZATION | ECOWAS, IMF, IBRD, ADB, ECA, UNCTAD, EU

ECONOMIC GROWTH AND DEVELOPMENT | CAUSES, SOLUTIONS, STATEGRIES, CHARACTERISTICS

LABOUR AS A FACTOR OF PRODUCTION

 

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