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And finance Allah Shmoop What is the production possibilities Curve

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Okay people Maybe Willy Wonka was onto something And with

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all that pure imagination talk the people in charge of

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making stuff have to survey their production like you know

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your dog's surveys the yard every morning as if she's

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never seen it before You're imagining all the possibility to

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make more of this for more of that Yes well

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but of course firms aren't imagining that can make unlimited

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amounts of stuff They're imagining riel possibilities Things they could

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do with the resources they have on hand Will this

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imaginary world too constrained Fourth fun stuff like triple rainbows

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unicorns and trees that grow video games is the stuff

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of the production possibilities curve Will the production possibilities curve

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also known as the production possibilities Frontier shows the different

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combinations of two goods that can be made with a

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given bucket of stuff we already have Like labor inputs

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hardware all that stuff We'll call it the PPC for

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short To save ourselves You know some precious breath Well

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the PPC usually looks like this kind of bowing out

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there Yeah on the X axis is one good and

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the Y axis Another good So every point on this

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graph not just the curve The whole box is a

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different combination of two things The curve tells us what

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our best options are Well in the nineteen nineties there

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was a prankster company called Texcoco The name alone messed

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with people which made fake mustache is and whoopee cushions

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in its factory using things like rubber glue plastic labor

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and capital Yeah all that factory equipment stuff Well Texaco

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had some decisions to make It could make only fake

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mustache is with resource is on hand which would result

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in the production of one hundred mustache Is it Could

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also on ly make whoopee cushions like Texaco could make

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a thousand whoopee cushions if it only dealt in the

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whoopee cushion underground Are you know market Or maybe it

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could make mostly whoopee cushions like nine hundred of them

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And some mustache is Well let's see if we can

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make a nine hundred What big oceans that leaves enough

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resource is for twenty five Fake mustache is Yeah And

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all these production options are options on our PPC This

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thing Well why do economists go with a fancy shmancy

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curve over a boring table Well tables are hard to

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look at All those numbers air dizzying you know and

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economists are on the brink of a heart attack all

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the time anyway thanks to those boom and bust cycles

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But that's another story A curve is a nifty tool

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because it shows us all of that info without all

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the numbers It's also handy because unlike a table a

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curve is continuous Justus There are an infinite number of

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numbers between zero and one right It's continuous if we

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missed an option in our table while we won't miss

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it in the curve because while it will be part

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of the curves it's all the little dots in here

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We also like the curve because it tells us things

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like a fortune teller you know but accurate For instance

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all of our most efficient production possibilities are on the

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curve Efficiency here means Bobby Joe and William Jr The

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fifth are pumping out Moustache is and will be cushions

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using their work time to be as productive as possible

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Save the Hanji time for lovers Lane Yeah okay Well

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yeah they're not only being diligent workers on the clock

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but are also using the rubber and glue and things

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to the utmost capacity wasting as little as possible Yeah

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it's a scarce world out there Well basically a firm

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is getting the most bang and not the lover's lane

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kind for its buck when production is efficient And that's

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when we're walking the line of the PPC So what

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if Bobby Joan William Jr The Fifth we're wasting time

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making intense eye contact from across the factory floor Well

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they're wasting time and letting glue fall to the floor

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causing all kinds of waste and problems that will take

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time to fix Yeah it's pretty bad Which would mean

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Texaco is producing somewhere under the curve Not the best

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use of our scarce resource is Well Texaco must do

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its best to bring its pranks to the prankster of

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the nineties Yeah What about this area over the curve

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The land of unicorns and video game fruiting trees The

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land of Well just not gonna happen Makes sense because

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at the line we're already doing as much as we

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simply can With the little we have we're at one

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hundred percent We can't be doing one hundred eighteen percent

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of our capacity right Well there's one case where we

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could produce outside the curve If some of Bobby Joe

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and William Juniors labor was replaced with robots that made

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the stash is and cushions more efficiently while our curve

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would shift outward It's just what technological innovation does It

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helps us make things better than before Well the curve

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also shows trade offs and opportunity costs You know the

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reason we have to choose one option Things are limited

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It shows that if we started making on ly whoopee

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cushions while we can make a thousand if we put

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all the resource is into just making those you know

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remember we can trade off one hundred whoopee cushions to

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make twenty five Moustache is it's kind of our equation

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making nine hundred cushions and twenty five stashes instead of

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a thousand and zero That's an opportunity cost of those

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hundred whoopee cushions Twenty five Moustache will give a little

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of one thing to get a little of another thing

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The market you know where pranksters run rampant will help

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companies like Texaco figure out which point on the PC

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is their best bet Okay people to recap the production

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possibilities Frontier shows us all the options for producing two

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things as efficiently as possible With the scarce resource is

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available It shows us things like our trade offs and

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opportunity costs unfortunate things firms have to face in real

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life because yeah there's scarcity People sees curve outward like

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that because our trade offs aren't one toe one Our

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opportunity cost increases We trade off one thing for another

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moving along the curve Well the graph is better than

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the table because we can literally see what the production

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possibilities are how they're efficient and all that and which

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ones are impossible Yeah And then of course the inefficient

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ones that live down there Alright Yeah and we're looking

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at you Bobby Joe Come on man Get your shoe

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out of the glue before it hardens there When we

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replacing you with a robot let's get back down Yeah

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