Production possibilities frontier

The production possibilities frontier (PPF, PPC, production possibilities curve) is a graphical representation of the output possibilities in producing two goods, and the opportunity cost of producing one good in lieu of another.

Each good is placed on an axis, and a line materializes representing the maximum output of the y-axis good for every quantity of the x-axis good. The curve of most PPFs represents increasing opportunity cost as production increases, a phenomenon known as the Law of Increasing Opportunity Cost.

The PPF assumes that the factors of production are not changing and reflects a single instance in time.

Factors affecting the curve and points within it
Since the curve represents the frontier, or boundary of production, it assumes full employment of the resources of production. The factors of production are land, labour, capital, and entrepreneurship. It is virtually impossible to produce on the line, because that entails no land being used for residential or public purposes. The area bounded by the curve represent production possibilities as well. However, they are states of inefficiency or partial employment of resources.

Curve shifters
Shifting the actual curve demands and increase in the quality or quantity of the factors of production. An outward shift will occur after any of the following example events: On the contrary, the curve will shift inward if disease, natural disaster, war, or any similar event causes effects opposite to those above.
 * Population increase (increased labour potential)
 * Improvements in technology (improved capital)
 * Improvements in business education (improved entrepreneurship)
 * Discovery of new natural resources (increase in land)

Increasing opportunity cost
The reason the slope of the curve becomes steeper is because in most cases, the resources used to produce one good are not perfect substitutes to produce another. When producing 100 units of pencils and 0 units of pens, for example, all factors of production are centred around pencil production. The labour will be trained in pencils, the machinery will be designed to produce pencils, and the raw materials will be suited to be turned into pencils. If 90 units of pencils and 10 units of pens are made, the most versatile workers, machines, and resources will be converted for pen making. However, as production swings to pens entirely, it will become increasingly difficult to train the most specialized pencil workers, replace the most specialized pencil machines, and sell the most specialized pencil resources. At 0 pencils, there would only be 40 pens being produced.

Linear PPF
If the PPF is linear, this suggests that the factors of production of one good are perfectly suited to produce another. A linear PPF might exist for RoseArt crayons and cow manure, for example. There are no examples of perfectly linear PPFs in reality. Even Coca-Cola and Pepsi, assuming they were produced by the same company, are sold in different cans.