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The production possibility model. A
production possibility model
demonstrates the different combinations
that could be produced from a fixed
quantity of productive resources. To
begin, let's look at the structure of a
production possibility model. First, there
is a title to let the reader know
exactly what you are graphing. The title
is a combination of product one and
product two that the Acme company
produces. Second, the graphs x and y axes
are labeled. This is where you place your
two products. Make sure the names of the
products are placed on separate axes.
Third, is segmentation. It is crucial that
both axes are segmented into the same
units and increments. It is necessary to
segment evenly so the data are
accurately represented. Now, let's label
the horizontal axis skateboards, and
label the vertical axis snowboards.
Then we will need to come up with a
title at the top of the graph. Next is
segmenting the graph. To begin, the Acme
company tells us it is a small company
with a fixed number of employees and
resources. The most the company could
produce in one day is 75 skateboards, or
50 snowboards. Because we have small
numbers with which to work an increment
of five is fine.
The Acme company wants us to create a
production possibility model for the
company. Here is the information
Acme has given us. If all of Acme's
resources are dedicated only to
skateboards, in one day the company can
produce 75 skateboards and 0 snowboards.
Next, let's plot the combination of
production possibilities for snowboards
and skateboards on our graph. Acme can
produce 75 skateboards, but if it
produces all 75 skateboards it cannot
produce any snowboards due to limited
resources.
Since skateboards on the horizontal axis
number 75, place the dot on 75. Because 0
snowboards on the vertical axis were
produced, we do not need to move our dots
up or down. Label the dot A at 75 on the
horizontal axis, and 0 on the vertical
axis. Next, we will label the dot B at 67
on the horizontal axis, and 15 on the
vertical axis. Next, we will label dot C
at 55 on the horizontal axis, and 25 on
the vertical axis.
Next will be dot D at 30 on the
horizontal axis, and 40 on the vertical
axis.
Next, we have dot E at 15 on the
horizontal axis and 45 on the vertical
axis.
Finally, is dot F at zero on the
horizontal axis,
and 50 on the vertical axis.
Now, using the coordinates we have
plotted on the graph, we connect the dots.
You have now created a production
possibilities curve.
Notice that when Acme produces 30
skateboards, it can also produce 40
snowboards with the resources it has.
This exemplifies for us the definition
of the production possibility model. A
model that demonstrates the different
combinations that could be produced from
a fixed quantity of productive resources.
Therefore, if it's summertime and people
are asking for more skateboards, Acme
will produce fewer snowboards and more
skateboards. Notice that Acme needs to
buy new machinery or employ more workers
to produce more of both products. Notice
that an increase in the number of people
wanting the product, does not push the
curve out. Acme will simply satisfy the
customers wants by producing more of one
product than the other. So once again, in
order for Acme to produce more of both
products, it needs to buy more machinery
or hire more people to work longer
shifts. As you can see, a production
possibilities model helps us to better
understand the different combinations of
goods that could be produced from a
fixed number of productive resources.
You have completed this activity "The
Production Possibility Model".