The diagram is called the production possibility curve. It is drawn under the assumptions: 1) The country can produce 2 goods guns and butter. 2) It uses all or its factors of production it uses land, capital, labour, entrepreneurship

The diagram shown is a Production Possibility Curve (PPC), which illustrates the trade-offs in production between two goods. In this case, the goods are labeled 'G' (Guns) and 'B' (Butter).

The first assumption for drawing a PPC is that the economy produces only two goods.

• Assumption 1: The country produces only two goods, which are guns and butter.

The second assumption relates to the utilization of resources. A PPC assumes that all available resources are fully and efficiently employed. The factors of production mentioned are land, capital, labor, and entrepreneurship.

• Assumption 2: The economy uses all of its factors of production (land, capital, labor, and entrepreneurship) fully and efficiently.