Production Possibility Curve (2)

ProductionProduction possibility curve is a curve which depicts all attainable mixtures of two items which an economic system can produce with available technology and with full and efficient use of its given resources.

When economic system is producing on PP curve each point on it like A, B, C, D, E and F reflects situation of full and efficient employment of sources. This means resources like labour, land , capital and so forth are not idle. A production chance curve reveals the potential of an economic system in which full utilization of resources like Land, Labour, capital and expertise can be employed.

The point A the place the full product stops growing at an growing fee and starts growing at a diminishing fee is called the point of inflexion. This is the point at which the curvature of the TP curve modifications. It is right here that diminishing returns set in. Average and marginal product curves also rise initially. However, they begin declining much earlier than the TP curve. The MP curve starts declining sooner than the typical product curve. The MP curve begins declining earlier, cuts the AP curve at its maximum point (P) after which falls at a steeper rate than the AP curve.

Increasing returns is a significant possibility in industry. In industry, the role of man is supreme and nature plays a negligible position. A manufacturing firm benefits from division of labor and specialization. The emergence of varied types of economies will tend to raise the output greater than proportionately. However, in industry also diminishing returns will happen past a limit.

The classical economists confined their dialogue of the legislation of diminishing returns to that of agriculture solely. Marshall held the view that if the position of nature is extra predominant than man, diminishing returns occur and the place man occupies a primary role in comparison with nature growing returns may happen. In brief, he visualized diminishing returns in agriculture and rising returns in business.