Question

Advantage of production possibility curve

Answer 1

To construct a combined production possibilities curve forall three plants, we can begin byasking how many pairs of skis Alpine Sports could produce if it were producing only skis. To findthis quantity, we add up the values at the vertical intercepts of each of the production possibilities curves inFigure 2.3.These intercepts tell us the maximum number of pairs of skis each plant can produce. Plant 1 can produce 200 pairs ofskis per month, Plant 2 can produce 100 pairs of skis at per month, and Plant 3 can produce 50 pairs. Alpine Sports can thus produce 350 pairs of skis per month if it devotes its resourcesexclusively to ski production. In that case, it produces no snowboards.

Answer 2

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A production possibilities curveshows the combinations of two goods an economy is capable of producing. ... The bowed-out shape of the production possibilities curve results from allocating resources based on comparativeadvantage. Such an allocation implies that the law of increasing opportunity cost will hold.