Production Possibilities Curve Analysis

Production Possibilities Curve (PPC) is a curve that shows that the production possibilities of an economy. It is a combinations of two goods that an economy can produce with given limited resources and technology. A production possibilities curve (PPC) represents the boundary or frontier of the economy's production capabilities, hence it is also frequently termed a production possibilities frontier (PPF). As a frontier, it is the maximum production possible given fixed (existing) resources and technology. Producing inside the curve means resources are unemployed, while Producing on the curve means resources are fully employed. The law of increasing opportunity of cost is what gives the curve its distinctive convex shape.

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There are a different between the ways to measure the consumption contentment. Cardinal utility is measure in quantitative, but ordinal utility is measure in qualitative. Cardinal utility which is help in understanding how much utility is derived from consumption of a product. However, ordinal utility is used to ranking of the products depending on the preferences of the consumer. The cardinal utility approach focus on the independent utility derived from a product and hence any dependence is avoided. Ordinal utility can be made of the utility derived from two products, but the utility cannot be computed

For example, most of the electricity companies are national firms which makes the government has the control of the firm and won’t allow any other firms to enter the market. And thus, there won’t be more than one electricity supplier in a country. The natural barrier happens when a firm has an insufficient fund to set up a large company or to create their own advance research and development (R&D). Take example in an oligopoly market where a businessman wants to set up a pharmaceutical company, to enter the market the businessman has to own a high amount of capital to set up an R&D to create his company’s medical products in order to compete with other firms. Should the business can’t compete, then he can’t enter the market. The artificial barrier is the type of barrier that a company creates intentionally to prevent other firms to enter. A good example is that a company’s strong brand, in the oligopoly market Tesco is a highly renowned brand all over the world while in the monopoly market, Indonesia’s electricity supplier Perusahaan Listrik Negara (PLN) is a widely known company in the country and is the only electricity supplier in the country and so deters other firms to enter the