Individual Project 1 - Microeconomics

Topics: Economics, Comparative advantage, International trade Pages: 2 (567 words) Published: July 6, 2011
Economic Concepts for Unit One
Scenario
Suppose that two people, Michelle and James each live alone in an isolated region. They each have the same resources available, and they grow potatoes and raise chickens. If Michelle devotes all her resources to growing potatoes, she can raise 200 pounds of potatoes per year. If she devotes all her resources to raising chickens, she can raise 50 chickens per year. (If she apportions some resources to each, then she can produce any linear combination of chickens and potatoes that lies between those extreme points. If James devotes all his resources to growing potatoes, he can raise 80 pounds of potatoes per year. If he devotes all his resources to raising chickens, he can raise 40 chickens per year. (If he apportions some resources to each, then he can produce any linear combination of chickens and potatoes that lies between those extreme points.) PotatoesChickens

Michelle20050
James8040
Opportunity Cost Comparison
Michelle James
Potatoes 200/50 = 4 80/40 = 2
Chickens 50/200 = ¼ 40/80 = ½
Question 1:What is Michelle’s opportunity cost of producing potatoes? Answer:Michelle has the opportunity cost of producing ¼ chicken per pound of potatoes. So, the opportunity cost for Michelle is ¼ of a chicken. Question 2:What is Michelle’s opportunity cost of producing chickens? Answer:Michelle has the opportune cost of producing 4 pounds of potatoes for every one chicken. So, the opportunity cost for Michelle is 4 potatoes. Question 3:What is James’ opportunity cost of producing potatoes? Answer:James has the opportunity cost of producing ½ chicken per pound of potatoes. So, the opportunity cost for James is ½ of a chicken. Question 4: What is James’ opportunity cost of producing chickens? Answer:James has the opportunity cost of producing 2 pounds of potatoes for every one chicken. So, the opportunity cost for James is 2 pounds of potatoes....
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