The PPF simply shows the trade-offs in production volume between two choices. Production points inside the curve show an economy is not producing at its comparative advantage. All choices along the curve shows production efficiency of both goods. ª The reciprocal of the opportunity cost shows the opposite—the opportunity cost of the second good in terms of the first one. Deriving an Algebraic Equation for the Production Possibilities Frontier ª The algebraic formula for a production possibilities frontier (PPF) shows the opportunity cost of one good in terms of the other. Input-output (Leontief) production function is widely used in economic analysis. The production possibilities curve is also called the PPF or the production possibilities frontier. The Production Possibility Frontier (PPF) is an economics term referring to a graphical representation of the possible combinations or rates that two different commodities will be produced at given the same amount of resources, manpower, and other factors of production available within a certain period of time. Saudi Arabia can produce 100 barrels of oil or 25 bushels of corn. Saudi Arabia can produce 100 barrels of oil or 25 bushels of corn. If the PPF is linear, it means that the amount that is given up of one good to obtain another remains fairly constant. So it costs them just as much "y" to get the 1st unit of "x" as the 10th unit of "x". Leontief production function normally results in a linear production possibility frontier (PPF) due to its linear feature, whereas diminishing marginal rate of return implies a non-linear PPF. And diminishing marginal rate of return is a very well accepted economic fact. Both their marginal costs and … So the opportunity cost of one barrel of oil is two bushels of corn—or the slope is 1/2. https://www.investopedia.com/terms/p/productionpossibilityfrontier.asp So the opportunity cost of one barrel of oil is two bushels of corn—or the slope is 1/2. Thus, in the U.S. production possibility frontier graph, every increase in oil production of one barrel implies a decrease of two bushels of corn. It is usually used to describe two very identical goods, as roughly the same amount of resources are used to manufacture both. However, the law of supply states that the marginal cost of production (the cost of increasing production by one unit) tends to increase as production increases. The slope of the production possibilities frontier represents the magnitude of this tradeoff. A production possibility curve (PPC) shows the different combinationstyles of output of TWO goods that an economy can produce considering the factor of production and technology to be constant. B) implies that gains from specialization and trade are unlikely. If the cost were linear (making one milk chocolate bar implies making one less dark chocolate bar), then the boundary of the production possibility frontier would be a straight line. Since the production possibilities frontier represents all of the points where all resources are being used efficiently, it must be the case that this economy has to produce fewer guns if it wants to produce more butter, and vice versa. D) implies a linear production possibilities frontier. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost Firms in the economy experience constant returns. C) follows from the law of demand. 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