Question

LLLLLLLLL LLLLL LLLLLLLL profit of $10 per shot, money that can go to pay for cepts of positive and normative economics. WORK IT OUT Interactive step-by-step help with solving this problem can be found online. 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. Maximum annual output options Quantity of Quantity of potatoes (pounds) fish (pounds) 1,000 300 600 500 400 600 650 a. Draw a production possibility frontier with pota- toes on the horizontal axis and fish on the verti- cal axis illustrating these options, showing points A-F. b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain. Where would this point lie relative to the production possibility frontier? c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds? d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? 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? 800 200 F 675

Answer 1

(a)

Maximum annual output options	Quantity of Potatoes (pounds)	Quantity of fish (pounds)
A	1000	0
B	800	300
C	600	500
D	400	600
E	200	650
F	0	675

800 700 600 500 400 300 200 100 1000 1200 200 400 600 800 Quantity of potatoes Quantity of fish E.

(b) No, Atlantis can not produce 500 pounds of fish and 800 pounds of potatoes.

Atlantis can produce 600 pounds of potatoes with 500 pounds of fish.

Atlantis can produce 300 pounds of fish with 800 pounds of quantity.

This point is lie outside to the production possibility frontier.

(c) In order to increase the annual output of potatoes from 600 to 800 pounds annual production of fish falls from 500 to 300 pounds.

Hence the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds is 200 pounds of fish.

(d) In order to increase the annual output of potatoes from 200 to 400 pounds annual production of fish falls from 650 to 600 pounds.

Hence the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds is 50 pounds of fish.