Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

B
A
p
p
le
s
 
 
 
 
 
Figure 12.3 
The line that connects points A and B is called a production 
possibilities frontier (PPF). It represents all of the possible 
combinations of production possibilities available to Appleoplios. If 
the economy decides that it needs apples and shoes it can choose 
to produce at any point along the production possibilities curve. If 
they choose to produce at point C they are making a combination of 
let‘s say shoes 3.5 million shoes and 50 million apples. With that in 
mind, what is the opportunity cost of producing 3.5 million shoes?
What did we give up to produce the shoes? We gave up 50 million 
apples. Opportunity cost is always expressed in terms of what we 
gave up in order to get something else. In this case we gave up 50 
million apples so we could move some resources in to the 
production of shoes.
What about point D on the curve? At point D Appleoplios 
can produce 80 million apples and 2 million shoes. What is the 
opportunity cost in terms of shoes? How many shoes did they give 
up in order to make 80 million apples? They gave up 2 million 
shoes. So using all the available resources the country of 
Appleoplios has a variety of production choices. When the produce 
on the production possibilities curve they are using all of their 
resources to there maximum potential. This is their most efficient 
point. 
What about some other possible points for consideration?
Can they, for example produce at point E? Yes they can. This is a 
point of under utilization of resources. They are not operating at 
peak efficiency. Why would thy do this? If Appleoplios wants to 
save some resource for future use then they would produce at a 
point inside their PPF. Maybe they want to save water or another 
resource to use at a later date. 

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