The transformation curve is also known as the capacity line or production possibilities curve. It is used in economics as a graphic representation of the efficient combinations of quantities of goods in relation to the use of resources.
Definition / explanation
This curve is an instrument that is used in economics to show a scarcity problem and the resulting alternatives. All points in the transformation curve are technically efficient and the points below the curve can also be implemented. This closed set is also known as the production possibility or production space. This includes all combinations of goods that are associated with the existing production factors can be made possible.
The transformation curve shows the production possibilities limit of an economy, the maximum that can be produced. In reality, with innumerable goods, it cannot be constructed. Rather, it is a theoretical concept to be of use in clarifying some fundamentals and terms.
Derivation of the transformation curve
Let's assume there is only one production factor that is always fully utilized and only two end products. Everything is clearly predetermined and the technology is given. The production factor is labor and the two goods are X and Y. It is possible to describe the emergence of goods X and Y from labor with the help of production functions. The number of employees is always the same, based on this the respective production volume can be constructed.
Die Transformationskurve zeigt die Produktionsmöglichkeiten bei gegebenen Ressourcen und gegebener Technik. Ändert sich eine Production function oder ein Faktorbestand, dann würde sich eine andere Grenze der Produktionsmöglichkeiten – also eine andere Transformationskurve ergeben.