Question

A company that makes industrial-grade carpeting has a small production line for carpet made of mohair, which is a kind of wool, and another small production line for carpet made of polypropylene fiber, a synthetic product. The company also has a large, new production line that can be used for either kind of carpet; however, switching back and forth between the two types is cumbersome and time-consuming.

Quantity of synthetic carpet Quantity of wool carpet

With that information in mind, use the curved-line tool in the graph below to sketch the shape of the firm's production possibilities frontier. (Click on the point at the upper left, then click on one of the three points in the middle, and finish by clicking on the point at the lower right.)

Answer 1

Production possibilities frontier (PPF) shows various quantities of a commodity that can be produced in an economy with the given resources. It is concave to the origin. The reason for this shape of the PPF is because of law of increasing opportunity cost. This means that as the production of one commodity increases some quantity of the other has to be given up.

In this case, if more of wool carpet are to be made then some quantity of the synthetic carpets will have to be sacrificed.

There are two extreme points where only one of the carpets can be produced. (In the diagram it is denoted by point A and B)

The productions will lie in between these points where the cost will be minimized and profits maximized for the seller.

Quantity - Production synthetic carpet Possibilities Frontier ERPF) quantity of wool carpet