Production Possibilities Curves

Economists use graphic representations to demonstrate economic concepts. One of the most basic economic graphs is called the Production Possibilities Curve. The Production Possibilities Curve shows economists alternative ways to use resources in an effort to find the most profitable approach to business. Once an economist chooses to plot goods or services in a Production Possibilities Curve then he or she can ascertain the Production Possibilities Frontier. The Production Possibilities Frontier gives the economist an understanding of how much of a good or service should be developed in comparison to another good or service. Or in other words the Production Possibilities Frontier tells an entrepreneur how much of each good or service should be produced for maximum efficiency and profitability. Once a business is operating on the Production Possibilities Frontier there is no more room for increase - i.e. its resources are maxed out. If the business is operating below the Production Possibilities Frontier then the business is underutilizing its resources and has become inefficient and less profitable.

Economists and business persons alike seek to improve efficiency and profitability. If an economic system is operating at the Production Possibilities Frontier there is the possibility to push that curve into margins where higher returns are available. By developing additional resources an entrepreneur can create a Future Production Possibilities Frontier. More products or services become available as the business grows. A successful business seeks to move their current Production Possibilities Frontier to Future Production Possibilities Frontier to increase profitability.