Final answer:
The production possibilities curve represents trade-offs and maximum potential outputs in an economy. For Alpine Sports, combining linear PPCs from each plant results in a bowed-out curve, reflecting increasing opportunity costs under the principle of comparative advantage.
Step-by-step explanation:
Understanding Production Possibilities Curves
The concept of the production possibilities curve (PPC) is central to understanding resource allocation and opportunity costs within an economy. It is used in economics to represent the trade-offs and maximum potential output of two products with a given set of resources and technology, assuming efficient use of those resources.
Alpine Sports, a hypothetical firm mentioned in the question, can be used to illustrate how a PPC is constructed and how it reflects comparative advantage and opportunity costs.
Each plant operated by Alpine Sports has a linear PPC, suggesting a constant trade-off rate between snowboards and skis. However, when combined, the PPC for the entire firm takes on a bowed-out shape.
This shape indicates increasing opportunity costs as resources are reallocated from ski production to snowboard production, reflecting the principle of comparative advantage – resources are shifted from plants with lower opportunity costs to those with higher opportunity costs for snowboard production.
The PPC can also demonstrate economic efficiency. Points along the curve represent efficient production levels, while points inside the curve suggest underutilized resources, and points outside are unattainable with current resources.
By operating at different points on the PPC, Alpine Sports can choose different combinations of skis and snowboards to produce, based on market demand and profitability.
To create a combined PPC for all three plants, Alpine Sports would add up the maximum number of skis that each can produce to find the total production if only skis were made.
Then, by calculating the opportunity costs of producing snowboards at each plant (given by the slopes or the number of skis foregone per additional snowboard), Alpine Sports can illustrate the trade-offs of producing different combinations of both products.