Pure Pedantry

A Production Possibilities Frontier (PPF) is a diagram that illustrates the trade-offs between the production of two goods for an individual or group. The production of good A is on one axis, and the production of group B is on the other. As the production of good A increases, the production of good B increases. This trade-off between the maximum production of A and B occurs because all choices have opportunity costs, and there is only so much time and productive capacity available.

For example, here is my PPF:

The two goods that I produce in a given day are blog posts and experiments involving rats. I am a behavioral neuroscientist, so I am training a number of rats over many days. My productivity with respect to experiments is directly-related to the number of rats that I am training at any given time.

As the diagram illustrates, because I have a limited amount of time in my day, as the number of rats I am training increases the number of blog posts I can write decreases.

Note that the graph is "bowed-out." This is because there is a diminishing return on my investment of time as the production of any particular good reaches its maximum -- i.e. the opportunity cost for running an additional rat increases (in terms of blog posts) as the number of rats increases.

I argue that this graph is bowed out because training rats is quite frankly not a very interesting activity. 3 or 4 hours a day -- the time required to run about 6 rats -- is about the maximum any person can do before they begin to go a little insane. Thus, the "Go insane" zone is to be avoided because small increases in experimental productivity occur a high costs for the rest of my life. Likewise, there is only so much blogging a human can do. You may find this difficult to believe, but there are only so many things I can shoot my mouth off about. Further, if I blog too much I am likely to never graduate. Thus, the "Never graduate" zone of minimal experimental productivity is also to be avoided.

The zone of my maximum productivity for both goods, therefore, is somewhere in the middle -- around 7 rats per week and 7 blog posts.

The PPF diagram can be applied to individuals, and it is sometimes used to illustrate the benefits of trade. For example, if you only made stuff for which you have a comparative advantage and you trade with someone who had a comparative advantage for other stuff, you could make it so that your consumption exceeded the maxima of your PPF. Also, a PPF diagram could be drawn for a country rather than just a group, illustrating in that case the trade-off for say producing cars vs. producing corn.

Neat stuff, right? Well, I was particularly impressed with it. Since I showed this graph to my boss, I convinced him that my maximum productivity was really achieved at 7 rats. Score one for economics!