How to Achieve Highest Production-Possibility Curve?

In order to achieve highest production-possibility curve, it is important to choose the right techniques of production.

This will also help to reduce the cost of production and induce best utilization of resources. In other words, it depends on the efficiency of factors of production.

The other factors which are responsible to attain maximum production are stated below:

1. Choice between Labour Intensive Techniques and Capital Intensive Techniques:

First of all, the choice between the labour intensive techniques and capital intensive techniques is most crucial. Labour intensive technique of production means the use of more labour and less of capital. In under-developed economies where labour is in plenty and capital is relatively scarce, labour intensive technique is better. Capital intensive technique refers to the use of more of capital and less of labour. In economies where labour is relatively scarce, capital intensive methods of production are more suitable.

2. Specialization:

To produce more goods at lesser cost of production, specialization is essential. Under specialization right man is placed at the right place.

Specialization brings about under noted advantages:

(i) Use of modern and up-to-date capital asset.

(ii) Use of capital asset to its full capacity.

(iii) Invention and innovations.

(iv) Economical use of raw-materials.

3. Efficient Organization:

Better organization increases the magnitude of output and lowers the cost of production. The factors of production should be so employed as to equalize their marginal productivities. This means that the allocation of the various factors should be made according to the principle of substitution.

4. Localization:

Again the economy has to decide regarding the localization of the various firms.

In the matter of localization following factors are to be kept in consideration:

(i) Natural advantages to the firms viz., facilities of raw material, power, transport, suitable climate etc.,

(ii) Economic advantages of the firms viz., nearness to the market, availability of cheap labour, capital etc.

(iii) Other miscellaneous advantages like political patronage and reputation etc.

Now, we are in a position to draw production possibility frontier curve and this is shown in fig. 2 which represents this fundamental fact: “A full- employment economy must always be producing one; commodity by giving up something of another. Substitution is the law of life in a full-employment economy. The production-possibility frontier depicts society’s menu of choices.”

In case of unemployment we can never be on the production-possibility frontier, but will rather be somewhere inside it as shown by R in Fig. 2. In this case, by putting more resources to use or by increasing their efficiency, we can increase both food and cloth and move from R to C or D on the production-possibility frontier. This also provides a rigorous definition of scarcity.