Question

A company purchases new improved technology. How will this impact on the company’s production possibility frontier (i.e. PPF) and why?

Answer 1

A technological improvement implies changing the combination of input by decreasing the cost of input which are needed in production. Thus, the cost of production decreases and the pofit margin increases. With more quantity produced at the same price, the supply curve tends to shift towards right and price falls. If there is technological improvement in the whole economy, production possibility frontier(PPF) will shift outward. Thus, an improved technology allows greater output at same inputs leading to a outward shift of PPF.