Terminologies:
a) Marginal rate of product substitution (MRPS)
- It means the rate of change in quantity of one output as a result of unit increase in the other output, given that the amount of the input used remains constant.
- The MRPS of Y1 to Y2 will be:
MRPS = ΔY2 / ΔY1
b) Production possibility curve
- Production possibility curve presents all possible combinations of two products that could be produced with given amounts of inputs.
- Production possibility curves are sometimes called opportunity curves or iso-resource curves.
- Term opportunity curve is used because the curve presents all possible production opportunities.
- It is known as iso-resource curve because each output combination on this curve has same resource requirements.
|
Allocation of land in acres |
Output in quintals |
||
|
For cotton (Y1) |
For Maize (Y2) |
Y1 (Cotton) |
Y2( Maize) |
|
0 |
5 |
0 |
60 |
|
1 |
4 |
8 |
48 |
|
2 |
3 |
15 |
36 |
|
3 |
2 |
21 |
24 |
|
4 |
1 |
26 |
12 |
|
5 |
0 |
30 |
0 |
- Plotting above data on graph then we get Production possibility curve.