Suppose that given the production functions of X and Y (that is, the physical conditions of production) and the quantity of K and L allocated to each output, society is at a point of the production possibility frontier
where 1 unit of Y substitutes for 1 unit of X or, alternatively, that the cost of production of X in terms of Y is 1 (this is called the rate of transformation of Y to X).
Key words: benchmarking, production possibility frontiers
, efficiency/inefficiency measurement, J-Curve of adoption of innovations, convergence.
With more goods than factors, it is possible for the economy's static production possibility frontier
to be a hyperplane in the multi-dimensional commodity space of goods available at a given time.
Rational behavior, joined with long run competitive market forces, are assumed to force the economy to produce along the production possibility frontier
In this case, input supply curves are horizontal and the economy's production possibility frontier
is specified for a given level of total input cost.
p] represents the production possibility frontier
of a planned economy in which output composition is fixed by the "centre" in point Ep, and does not match consumers' preferences (this point displays the deliberate violation of the Paretian condition that requires the marginal rate of transformation in production to equal marginal rates of substitution in consumption).
5 In pure production settings such as that used to derive production possibility frontiers
, no surrogate measures are necessary.