Constructing a production possibility curve
Channel: Werner Lost
Date: 07/07/2012

This activity is based on a hypothetical country called Fantasia. 

In this country two goods are  produced namely food and guns (for its defence force). 
If Fantasia uses all its available resources, that is all the land, labour capital and technology to produce only food they will be able to, for instance, produce 40 tons of food.  This, however, implies that they will not be able to produce any guns since they are using all their resources for the production of food. 
On the other hand if Fantasia uses all its resources for the production of guns it will be able to produce 5.5 million guns but no food.  This is indicated as combination E.
Fantasia can however decide not to use all its resources for either food or guns but to produce a combination of food and guns.  Such a combination can be combination B which implies that they will be producing say 30 tons of food and 2 million guns.Or they can decide on combination C which means they will be producing 20 tons of food and 3.5 million guns.  Or maybe combination D which means they will produce 10 tons of food and 4.5 million guns.