Now let's plot Econ Isle's production possibilities on our graph. Econ Isle’s production possibilities are graphed to show its frontier, and then used to discuss the opportunity costs of its production and consumption decisions. The production possibilities frontier shows the productive capabilities of a country. It uses labor, or human resources, which is the quantity and quality of human effort directed toward producing goods and services. The production possibility frontier (PPF) is a curve that illustrates the varying amounts of two products that can be produced when both depend on the same finite resources. Let's say Econ Isle increases its production of widgets to 5. This next figure is designed to show you what happens to the economic growth rate of different countries over time as they choose between consumption today versus investing in their economy for the tomorrows that will follow. Here, voters can choose between private goods like autos and houses, bought at a price, and public goods, like roads and bridges, paid for by taxes. This line is the frontier. Illustration: Using a given piece of land (and other inputs). You know, an outer limit or a border? For example to produce 8 million tons of watermelons we have to give up making 1 million pairs of shoes, because resources are limited. How does the production possibilities frontier illustrate opportunity cost? Now let's put the PPF to work to illustrate some other important ideas. For example, if workers—who are labor resources—are working in the widget factory, they are not working in the gadget factory. In other words, capital resources are the tools the people of Econ Isle use to produce widgets and gadgets. You are forced to make a decision on how to allocate the scarce reso⦠PPFs are normally drawn as bulging upwards or outwards from the origin, but they can be represented as bulging downward or linear, depending on a number of assumptions. And the important idea behind the PPF is that societies cannot have everything they want. An economy that operates at the frontier has the highest standard of living it can achieve, as it is producing as much as it can using the same resources. In other words, you face a trade-off: any time you spend harvesting pineapples is time that cannot be spent looking for crabs. An economic model is only useful when we understand its underlying assumptions. Now this figure shows what happens over time. It shows the trade-offs companies or individuals face when they have to decide how to allocate their limited resources between two alternatives. Interested in using our Suppose the production possibility frontier for Guns (G) and Butter (B) is given by G^2 + 2B^2 = 900. Producing more widgets will require Econ Isle to divert resources from gadget production to widget production, resulting in fewer gadgets produced. this sacrifice (less of the second good) is the opportunity cost ⦠And that's where the tools of microeconomics, and particularly production theory, can be so helpful. Selecting one alternative over another one is known as opportunity cost. So take a look at this figure, which once again illustrates a country's trade off between guns and butter. For this model, imagine the following scenario: You are stranded on a tropical island alone. Segment 3 of The Production Possibilities Frontier uses the production possibilities frontier to demonstrate how, in the real world, opportunity cost increases as production increases. 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