Production Possibilities Curve (Frontier) Graph

A production possibilities curve (also referred to as a production possibilities frontier) is a graph that shows the maximum combination of two goods that can be produced with a given set of resources. The curve is used to illustrate the concept of opportunity cost – that is, the cost of an opportunity foregone. The curve can also be used to illustrate production efficiency and other economic concepts. In the graph, the two axes represent two different goods (or services) and the points along the curve represent different combinations of the two goods that can be produced. The higher up and farther right the curve, the more of the two goods that can be produced. The curve slopes downward because of the law of diminishing returns, which states that increasing one input (in this case, one of the two goods) while others stay constant, eventually leads to a decrease in output.