Micro Econ
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. Examine the following production possibility frontier graph with corn on the horizontal axis and poultry on the vertical axis illustrating these options and 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?
St. Atanagio would not be able to produce 650 pounds of poultry and corn. These amounts lie outside of the production possibility frontier.
3. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?
To produce 200 additional pounds of corn and boost production up to 1000 pounds there is an opportunity cost of 200 lbs of poultry.
4. What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds?
The opportunity cost of increasing production from 200 to 400 pounds was 75 pounds of poultry.
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 aren 't the same because the better resources including land and workers are used at the beginning of production. As more resources are used to produce additional corn dramatically less resources are available to devote to the producing the poultry; the marginal cost increases as more corn is
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. Examine the following production possibility frontier graph with corn on the horizontal axis and poultry on the vertical axis illustrating these options and 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?
St. Atanagio would not be able to produce 650 pounds of poultry and corn. These amounts lie outside of the production possibility frontier.
3. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?
To produce 200 additional pounds of corn and boost production up to 1000 pounds there is an opportunity cost of 200 lbs of poultry.
4. What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds?
The opportunity cost of increasing production from 200 to 400 pounds was 75 pounds of poultry.
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 aren 't the same because the better resources including land and workers are used at the beginning of production. As more resources are used to produce additional corn dramatically less resources are available to devote to the producing the poultry; the marginal cost increases as more corn is
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