Environmental Engineering Reference
In-Depth Information
Pareto efficient. The point
O
lying beyond the curve, however, is technology
constrained andnotfeasible,whileallpointsbelowthecurve(suchas
X
)are
possible but relatively inefficient trade-offs. At
X
, the firm could choose to
produce more market goods without sacrificing EQ by moving to a point on
the frontier. Other combinations such as
P
1
and
P
2
are theoretically possible
but are constrained by practical considerations. Environmental regulations
preclude production at
P
2
, and the cost of production at
P
1
will price the
product too high to be competitive. These are not choices a rational entity
will select. Convexity of the curve to the origin shows that sacrificing one
product does not result in the same magnitude of increase of the other (the
phenomenon of diminishing returns). Higher investment will expand the
businesswiththeconvexPPFcurvemovingoutward,makinghighervolume
of production possible without altering its shape.
Figure 2.4
Production possibilities frontier with illustrative placement of
business entities.
The PPF is particularly valuable in illustrating the different phases of
adoption of the sustainable developmental paradigm by businesses. Three
such phases might be anticipated.
In the first phase, an entity such as
X
placed below the curve will strive to
move on to the curve, the efficient frontier, to operate at full efficiency and
maximum profitability. Often, this is by reassessment leading to changes in
the wasteful legacy systems. This can theoretically occur along two extreme
