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# Mid-Term Explanations[1] prof answers - B U-204 M id-Te rm...

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BU -204 Mid-Term Assignment Explanations 1. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh 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. a. Draw a production possibility frontier with potatoes on the horizontal axis and fish on the vertical axis illustrating these options, showing points A F . The diagram below shows the production possibility frontier for Atlantis. 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? No, Atlantis cannot produce 500 pounds of fish and 800 pounds of potatoes. 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. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds? The opportunity cost of increasing output from 600 to 800 pounds of potatoes is 200 pounds of fish. 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. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? The opportunity cost of increasing output from 200 to 400 pounds of potatoes is 50 pounds of fish. 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.

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BU -204 Mid-Term Assignment Explanations e. Can you explain why the answers to parts c and d are not the same? The answers to parts c and d imply that the more potatoes Atlantis produces, the higher
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Mid-Term Explanations[1] prof answers - B U-204 M id-Te rm...

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