AB204_03_Williams_Destiny_mid

# AB204_03_Williams_Destiny_mid - U nit 4 [ BU204 |...

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Unit 4 [ BU204 | Macroeconomics ] Assignment Destiny Williams AB 204-03 February 25, 2011 1

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Unit 4 [ BU204 | Macroeconomics ] --------------------------------------------------------------------------------------------------------------------- Questions: 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. Maximum annual output options Quantity of potatoes Quantity of fish (pounds) (pounds) A 1,000 0 B 800 300 C 600 500 D 400 600 E 200 650 F 0 675 a. Examine the Maximum annual output options table above and the resulting Production Possibility Frontier Graph below and answer parts b - f. 2
Unit 4 [ BU204 | Macroeconomics ] Production Possibility Frontier Graph b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? (5 points ) Explain. (5 points ) Due to resource constraints you cannot produce 500 pounds of fish and 800 pounds of potatoes . If Atlantis produces 500 pounds of fish, the most potatoes they can produce would be 600 pounds, which is 200 pounds less than 800 pounds . c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds? (5 points ) The opportunity cost of increasing the annual output of potatoes would be 200 pounds . 3

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[ BU204 | Macroeconomics ] d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? (5 points ) The opportunity cost of increasing potatoes from 200 to 400 pounds is 50 pounds. e. Can you explain why the answers to parts c and d are not the same? (20 points ) Although in both situations you are increasing the production of potatoes by 200 pounds, there is a higher and increasing opportunity cost the more you focus on the potatoes. As more potatoes are produced, you’re giving more capital and labor to produce it. This would mean that if you place potatoes on the Y- axes and fish on the X – axes, the PPF is bowed outward and gets steeper as it nears the X-Axis . a. What does this imply about the slope of the production possibility frontier? (20 points ) That there would be an increase in opportunity cost. If you have a resource that makes potatoes, 25%, and a resource that is expert in fish production, 25%, and then there’s a resource that is good in both, the full 50%,to produce potatoes to the fullest of your capabilities you would want to use all your resources, the full 25% to increase the potato production. If you were to use the resources that were good at both, the potato production would decrease due to the 25% of fish production resources available. If you focus on potato production than you use more resources toward this which would cause you to lose more fish but increases your potato production. 4
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## This note was uploaded on 03/09/2011 for the course BU 204 taught by Professor Enricodigiammarinojr during the Spring '10 term at Kaplan University.

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AB204_03_Williams_Destiny_mid - U nit 4 [ BU204 |...

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