The direct return on the economy from investments in assets associated with production invested in it is named after production opportunity.
The main obstacle limiting production opportunities is such a factor as 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 produce first.
To evaluate the production capabilities of the economy, analysts usually use a special chart called the production curve. It shows all the scenarios when using resources for the production of any products and products.
When analyzing this curve, economists can visually evaluate the production capabilities that the company has at this stage, as well as draw conclusions necessary for further work.
The law of substitution works just with the production curve. It consists in the following: with the full use of a resource for the production of products using the same technology, as well as with an increase in the output of these products, the number of units of a different kind automatically decreases for the production of which the same resource is required.
Absolutely any production can be effective if production capabilities are correctly distributed. For example, do not make obvious distortions, as a result of which some products will fill the market, while others will become exclusive, although the initial cost of the first and second will be approximately equal.
You should also take into account the factor that prices for any type of product manufactured by the enterprise in mass quantities will grow anyway, since opportunity costs always affect over time. The growth of such costs is the same alarming call, after which the company is recommended to either improve the technological process or stop 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 just the technological process needs to be changed. If all the technological capabilities are used, then it is imperative to abandon the release of these products.
What is interesting - analysts have established that today not only firms, but also society have production capabilities.
The production capabilities of a company are the totality of all the production capabilities of a particular territory. The competent use by society of resources will make it possible not only to save a certain amount of them in the future, but also to improve existing technological processes, thereby reducing opportunity costs.
Thus, when analyzing the state of production, it is first necessary to get acquainted with the indicators of production capabilities and establish whether it is possible to increase production or whether it is necessary to improve it first.