Question

WORK IT OUT Interactive step-by-step help with solving this problem can be found online. Draw a production possibility frontier with pota- toes on the horizontal axis and fish on the verti- 16. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish. cal axis illustrating these options, showing points b. Can Atlantis produce 500 pounds of fish and S00 pounds of potatoes? Explain. Where would this point lie relative to the production possibility A-F. frontier? c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds? Maximum annual Quantity of potatoes (pounds) Quantity of fish (pounds) output options 1,000 d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? B. 800 300 600 500 D. 400 600 e. Can you explain why the answers to parts c and d are not the same? What does this imply about the slope of the production possibility frontier? 200 650 675

Answer 1

ini (a) heroduction Possibility frontier with potabes on howzontal axis and fishes on vertical axis. 60F 650 PO 600 fishes (Pounds) 500 -------- - 300 BB 200 400 600 800 Potatoes (Pounds) (6) No, Atlantis cannot produce soo founds of fish and soo potatoes bounds of potatoes at the same time. This is because, the graph shows the maximum amount of production, which can be done when resources are employeed efficiently, re, maximum production of 2 products (fish and potato here). Therefore, Atlantis can produce 500 pounds of fish with Goo pounds of potatoes or 800 pounds of potatoes with 300 pounds of fish.

(c) Calculation & opportunity cost of increasing annual output of potatoes from 600 to 800 pounds. When 600 founds of potatoes are produced, 500 pounds of fishes are produced. But when soo founds of potatoes are produced, only 300 pounds of fishes are produced. Therefore, opportunity cost of increasing output of potatoes from 600 to 800 pounds is 200 fishes. (ine, 500-300 = 200 pounds of fish). (d) from Greaph, we can see that when 200 pounds of potatoes are produced 650 pounds of fish are produced But, when we increase production of potatoes to 400 pounds, 600 pounds of fish are produced. Therefore, opportunity cost is so pounds of fish, bo ww
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