The Production Possibilities Curve

Small businesses, especially those who provide services or products on the Internet, would do well to understand trends in science and technology that might influence their production possibilities curve. In economic terms, this is often referred to as the production possibilities frontier and is usually a graph showing the amount of products or services that can be provided to clients, based on the inputs. In terms of small business, this simply means time and labour costs.

Any entrepreneur should be aware of the production possibilities curve in their industry.

Moore’s Law and Industry Limits

Moore’s law is simply an economic idea that suggests that as a technology or industry expands, it will grow exponentially. At the same time, Moore’s law often comes face-to-face with the principles of diminishing returns. The more you invest in a technology or innovation that is experiencing some sort of a bubble, the higher the chance that you will suffer an economic setback or even failure. As more people jump onto the bandwagon, they create a greater supply, devaluing products and services.

Small micro economics businesses have been great innovators in this field as they explore the pitfalls of their individual production possibilities curve. Perhaps because of the dog-eat-dog nature of business, small enterprises and home-based businesses pioneer innovations as a survival strategy. By pushing the limits and creating new production possibilities curves, small businesses can hedge against future disasters that might decrease their capacity to produce.

The Uses of the Production Possibilities Curve

Knowing the production possibilities curve of your industry will help your business to succeed.

Knowing the production possibilities curve of your industry will help your business to succeed.

As a small business, you might find many uses for graphical representations of your production possibilities curve. When you are presenting your business proposal to the local Chamber of Commerce, for instance, a professional image can be created by providing the right charts and graphs to illustrate the likely projection of your business venture. The production possibilities curve in your field is also useful for getting backing from angel investors, who have traditionally been a means for small start ups to acquire the capital they need to begin a venture.

These charts and reports can also provide valuable tools for analysing your own productivity, services and innovations. By analysing your sales, Internet traffic, customer satisfaction reports and other business analytic information, you can easily identify the areas that might need improvement.

Technological Innovations to Increase the Curve

Your business’ production possibilities curve can be enhanced by emerging technological innovations. For instance, with the advent of cloud computing, 3D printing technologies and quantum storage devices, small business providers will be able to provide their clients with faster databases, more storage, fully-customisable products and ultra-fast communication methods that now include audio and visual elements.

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