PRODUCTION POSSIBILITIES FRONTIERS .docx

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Department
Business and Environment
Course
BSEN 401
Professor
William Huddleston
Semester
Fall

Description
PRODUCTION POSSIBILITIES FRONTIERS (FUNCTIONS, CURVES) Definition: A Production Possibilities Frontier (Function, Curve) is the maximum output combinations producible from a given set of resource inputs and a given set of technology. The Production Possibilities Curve demonstrates Scarcity, Choice, and Opportunity Cost. It also demonstrates Technological Efficiency, i.e., maximum output from given resources and technology. e.g. We begin our discussion with an example. Suppose that Canada is divided into 7 regions with identical resources of a million hectares of land, a million hours of labour, and a million units of capital but different climate and quality of land. Suppose further that each region can produce either wheat or apples but not a combination of the two. The table gives the output of each region per year in millions of bushels. B.C. Nova Ontario Quebec Alberta Manitoba Saskatchewan Scotia Wheat 1 2 3 3 4 4 6 Apples 5 4 3 3 2 2 1 The following table gives the total output combinations of the country as well as the opportunity cost of those options. Land in Wheat Wheat Output Apple Output Opportunity Cost Opportunity Cost per Option per Unit All 23 0 Less B.C. 22 5 1W 1/5 Less BC & Nova 20 9 2W 2/4 = 1/2 Scotia Less BC, NS, & 17 12 3W 3/3 = 1 Ontario Less BC, NS, ON 14 15 3W 3/3 = 1 & Quebec Less BC, NS, ON, 10 17 4W 4/2 = 2 PQ, & Alberta Less BC, NS, ON, 6 19 4W 4/2 = 2 PQ, ALT, & MAN All in Apples 0 23 6W 6/1 = 6 Total output is limited by the amount of resources (land, labour, and capital in each region) and the technology (including climate and quality of soil). British Columbia has the best climate and soil for apples but Saskatchewan has the best climate and soil for wheat. The resources here are heterogeneous for the most part since they aren’t the same quality (though the same quantity) in the different regionThe resources are homogeneous for Ontario relative to Quebec and Alberta relative to Manitoba since each of these regions has
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