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24 February, 2016 - 16:12

The production possibilities curve show the combination of two goods which can be produced by a country. The curve is concave (as viewed from the origin) because of the law of increasing cost. The curve is a boundary: outside is not achievable, but inside is inefficient.

Figure 2.1 Production Possibilities Curve 

A useful statistic calculated by the Commerce Department is plant capacity utilization. This statistic shows what proportion of our nation's productive capacity is being used, and therefore what proportion is left unutilized. These numbers can only be obtained if a measure of the total production capacity of the nation is estimated. This is one of the conceptual goals of the production possibilities curve.