• Home
  • Knowledge base
  • Useful Forms
  • FAQ

How do I calculate the production possibility frontier in Excel?

Modified on: 2018/07/16
A:

The production possibility frontier is actually a data set of values that produce a curve expressing opportunity cost on a graph. Opportunity cost is how economists understand the trade-offs and opportunities that could result from how scarce resources are allocated in production. As more resources are directed towards production of Product A, for example, fewer resources are available to produce Product B. The direct result is a reduction in how many units of Product B are produced. This concept helps businesses develop optimal production strategies that use resources efficiently and minimize waste. Calculating the production possibility frontier of multiple products is possible with Excel or another spreadsheet program.

To calculate the production possibility frontier, choose two variables to compare and create a column within the spreadsheet for each variable. After filling the columns with each variable's values, each row will have values that represent a data set that can be compared to determine production possibility values. Next, use the Excel chart wizard and choose XY scatter as the chart type. Label the chart, including the X and Y axis and chart title. The wizard will prompt the selection of a new workbook page or provide the option of using the current page. This will create a chart with the production possibility frontier clearly visible and with labeled values. The curve on the graph represents what could be produced by the model economy operating at maximum efficiency. Values outside the curve represent either impossible levels of production or inefficient operation. The calculated curve can be used to visualize what efficient production looks like and how to achieve it.


Did you find it helpful?
Related Articles