Bu224 Unit 2

Topics: Economics, Analytic geometry, Opportunity cost Pages: 2 (309 words) Published: September 24, 2012
Unit 2 Homework - Template

St Atanagio is a remote island in the Atlantic. The inhabitants grow corn and breed poultry. The accompanying table shows the maximum annual output combinations of corn and poultry that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for corn production, there are fewer resources available for breeding poultry.

Maximum annual output options| Quantity of Corn(pounds)| Quantity of Poultry(pounds)| 1| 1200| 0|
2| 1000| 300|
3| 800| 500|
4| 600| 600|
5| 400| 700|
6| 200| 775|
7| 0| 850|

1. Draw a production possibility frontier with corn on the horizontal axis and poultry on the vertical axis illustrating these options, showing points 1–7.

2. Can St. Atanagio produce 650 pounds of poultry and 650 pounds of corn? Explain. Where would this point lie relative to the production possibility frontier?

No, because if they produced 650 pounds of poultry then they’d only be able to produce 550 pounds of corn. (visa versa)

3. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?

If they increase the annual output or corn to 1000 then they would lose 200 pounds of poultry.

4. What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds?

If you increase the output of corn from 200 to 400 then production of poultry would be decreased by 75 to 700.

5. Can you explain why the answers to parts 3. and 4. above are not the same? What does this imply about the slope of the production possibility frontier?

The answers to part 3 and 4 are not the same because the level of production isn’t the same. Basically, the country isn’t at full production in question 4 where as in question 3.
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