2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
The direct return on investment in productive assets in an economy is called production opportunity.
The main constraint limiting production capacity is the usual lack of required resources. Their consumption in the production of a product means that these resources will not be enough to create other products. This state of affairs forces company directors to choose which products to release first.
To estimate the production possibilities of an economy, analysts usually use a special graph called the production possibilities curve. It shows all scenarios when using resources for the production of any items and products.
When analyzing this curve, economists can visually assess the production capabilities that the company has at this stage, as well as draw the necessary conclusions for further work.
The law of substitution works exactly with the production possibilities curve. It consists in the following: with the full-scale use of any resource for the production of products according toof the same technology, as well as with an increase in the output of this product, the number of units of a different kind of product is automatically reduced, for the production of which the same resource is needed.
Absolutely any production can be efficient if production capabilities are distributed correctly. For example, you should not make obvious distortions, as a result of which some products will flood the market, while others will become exclusive, although the initial cost of both the first and second will be approximately equal.
It should also take into account the factor that the prices for any type of product produced by the enterprise in mass quantities will grow anyway, since opportunity costs always affect over time. The growth of such costs is the very wake-up call, after which the company is recommended to either improve the technological process or stop the production of this type of product, since it will not pay for itself. If at the same time there is an incomplete expenditure of resources, then it is just necessary to change the technological process. If all technological possibilities have been used, then it is imperative to abandon the production of these products.
What's interesting is that analysts have found that today not only firms, but also society has production opportunities.
The production capabilities of a society is the totality of all the production capabilities of a particular territory. Proper use by societyresources will allow in the future not only to save a certain amount of them, but also to improve existing technological processes, thereby reducing opportunity costs.
Thus, when analyzing the state of production, you first need to familiarize yourself with the indicators of production possibilities and determine whether it is possible to increase production or whether it needs to be improved first.
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