Production Possibilities

Suppose that the farmer and the rancher each work 8 hours per dau 8 hours per day and can devote this time to growing potatoes, raising cattle, or a combination of the two. Table 1 shows the amount of time each person requires to produce 1 ounce of each good. The farmer can produce an ounce of potatoes in 15 minutes and an ounce of meat in 60 minutes. The rancher who is more productive in both activities, can produce an ounce of potatoes in 10 minutes and an ounce of meat in 20 minutes. The last two columns in the table show the amounts of meat or potatoes the farmer and rancher can produce if they work an 8-hour day producing only that good.

Illustrates the amounts of meat and potatoes that the farmer can produce. If the farmer devotes all 8 hours of his time to potatoes, he produces 32 ounce of potatoes (measured on the horizontal axis) and to meat. If he devotes all his time to meat, he produces 8 ounce of meat (measured on the vertical axis) and no potatoes. If the farmer divides his time equally between the two activities, spending 4 hours on each, he produces 16 ounce or potatoes and 4 ounce of meat. The figure shows these three possible outcomes and all other in between.

This graph is the farmer’s production possibilities frontier. As we discussed in Chapter 2, a production possibilities frontier shows the various mixes of output that an economy can produce. It illustrates one of the Ten Principles of Economics in. people face trade-offs. Here the farmer faces a trad-off between producing meat potatoes.

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