CH 2 - Brittany Hsu AP Econ GOLD 13 September 2015 P 46#1-16 1 a Producing 1 metric ton of fish allows Bermuda to produce 2,000 additional hotel stays

# CH 2 - Brittany Hsu AP Econ GOLD 13 September 2015 P...

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Brittany Hsu AP Econ GOLD 13 September 2015 P 46 #1-16 1. a. Producing 1 metric ton of fish allows Bermuda to produce 2,000 additional hotel stays. So, the production of 387 metric tons of fish allows Bermuda to produce 774,000 additional hotel stays. If all fishermen worked in the hotel industry, Bermuda could produce 1,328,400 hotel stays. b. The production of 2,000 hotel stays allows Bermuda to produce 1 additional metric ton of fish, so giving up 554,400 hotel stays allows Bermuda to produce 277.2 additional metric tons of fish. If all hotel employees worked in the fishing industry, Bermuda could produce 664.2 metric tons of fish. c. 2. a. b. No, it cannot. If it produces 500 pounds of fish, the most potatoes it can produce is 600 pounds. This point would lie outside the production possibility frontier, at point G on the diagram. c. If Atlantis increases output from 600 to 800 pounds of potatoes, it has to cut fish production from 500 pounds to 300 pounds, that is, by 200 pounds. d. If Atlantis increases output from 200 to 400 pounds of potatoes, it has to cut fish production from 650 pounds to 600 pounds, that is, by 50 pounds. e. The answers to parts c and d imply that the more potatoes Atlantis produces, the higher the opportunity cost becomes. For instance, as
Brittany Hsu AP Econ GOLD 13 September 2015 you grow more and more potatoes, you have to use less and less suitable land to do so. As a result, you have to divert increasingly more resources away from fishing as you grow more potatoes, meaning that you can produce increasingly less fish. This implies, of course, that the production possibility frontier becomes steeper the farther you move along it to the right; that is, the production possibility frontier is bowed out. 3. a. It is not efficient. Producing 1.8 billion bushels of wheat and 9 billion bushels of corn is less of both wheat and corn than is possible. They could produce more if all the available farmland were cultivated. b. At this new production point, farmers would now produce 1 billion more bushels of wheat and 1.7 billion fewer bushels of corn than at their original production point. This reflects an opportunity cost of 1.7 bushels of corn per additional bushel of wheat. But, in fact, this new production point is not feasible because we know that opportunity costs are increasing. Starting from the original production point, the opportunity cost of producing 1 more bushel of wheat must be higher than 1.7 bushels of corn. c. It is feasible and efficient in production. Along the production possibility frontier, the economy must forgo 0.666 bushel of wheat per additional bushel of corn. So the increase in corn production from 11.807 billion bushels to 12.044 billion bushels costs the economy (12.044 − 11.807) billion bushels of corn × 0.666 bushel of wheat per bushel of corn = 0.158 bushel of wheat. This is exactly equal to the actual loss in wheat output: the fall from 2.158 billion to 2 billion bushels of wheat.

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