Production Possibility Frontier or PPF

Running head: ECONOMICS
Economics
Name of the Student:
Name of the University:
Author note:

1
ECONOMICS
Answer
Production Possibility Frontier or PPF is the graphical representation of the different
possibilities or combination that can be achieved in the production of two goods with fixed
amount of resources. The fundamental assumption for PPF is that the resources are fixed and
hence, if the production of one good increases, the production of the other good decreases (Mert,
2016).
Brazil can produce 100000 units of clothing at the cost of 50000 cans of soda. This
implies that 1 can of soda has the same production cost as 2 units of clothing. Therefore, the
opportunity cost of 1 can of soda is 2 units of clothing (= 100000/50000 = 2) or for 1 unit of
clothing, the opportunity cost is 0.5 can of soda (= 50000/100000 = 0.5). Again, without trade,
the opportunity cost of 1 can of soda is 50000/25000 = 2 units of clothing. Hence, the PPF curve
for Brazil is:
0 10,000 20,000 30,000 40,000 50,000 60,000
0
5,000
10,000
15,000
20,000
25,000
30,000
Brazil, PPF
Clothing, Units
Soda, cans
Similarly, USA can produce 65,000 units of clothing per year and 250,000 cans of soda, and
hence, the opportunity cost of 1 unit of clothing is 250000/65000 = 3.85 cans of soda, and for 1

2
ECONOMICS
can of soda, the opportunity cost is 65000/250000 = 0.26 units of clothing. Without trade, the
USA produces and consumes 125000 cans of soda and 32500 units of clothing. Thus, PPF for the
USA is:
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
0
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
1,25,000
32,500
USA, PPF
Clothing, Units
Soda, Cans
From the above discussion, it is found that 1 can of soda has the opportunity cost of 2 units of
clothing in Brazil and 0.26 units of clothing in the USA. Hence, following the concepts of
comparative and absolute advantage, Brazil should specialize in clothing production and USA
should specialize in soda production.
A good is labor-intensive when its manufacturing process involves large number of
human resources. In case of labor intensive goods, the scope for economies of scale is lesser as
human effort is required more than the automated processes (Suzuki, Mano & Abebe, 2018).
Hence, in this case, clothing is the labor intensive good, as the manufacturing process undergoes