Proper Production Possibility Curves

There are no solutions; there are only trade-offs
Thomas Sowell

Forget the “classic” choice model between guns and butter with its single imaginary frontier. Such notions offer no basis for action. Never settle for heuristics when you can have analytics. To reveal true alternatives, we’ll need to do some heavy lifting.

In 4D.

No, really.

In A, we find an aircraft Demand Frontier in yellow. If we want to make 100 units (Quantity – Dimension (Dim) 1), we find our price limited to $393M (Price – Dim 2). For 55 copies, our price could rise to $610M (purple lines). In A’s Value Space, the sustainable price goes up with range (Dim 3) and velocity (Dim 4) but down with added units; thus, the angled Value Response Surface for 55 units is higher than that for 100 units. They form straight lines in log space where they intersect their respective price ceilings (the horizontal yellow and purple planes in Value Space). In B’s linear space, those intersections form multiple curves revealing the proper trade-offs. The yellow line shows us we could build a plane with 10K in range, with a max V of just over 1400 KPH.

It takes work to find Demand and Value, but in the end, we get insight available nowhere else.