Problem Set 2 - MyP.Le EC133C Microeconomics...

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My P. Le EC 133 – C Microeconomics Problem Set 2 - Part IV 1.   Consider a small, isolated island economy. People in this economy can grow  bananas or papayas. The accompanying table shows the maximum annual  output combinations of bananas and papayas that can be produced. Obviously,  given their limited resources and available technology, as they use more of their  resources for banana production, there are fewer resources available for growing  papayas.  Point A: 0 bananas, 380 papayas  Point B: 200 bananas, 370 papayas  Point C: 400 bananas, 350 papayas  Point D: 600 bananas, 300 papayas  Point E: 800 bananas, 200 papayas  Point F: 1000 bananas, 0 papayas  a. Draw a production possibility frontier with papayas on the vertical axis  illustrating these options, showing points A?F. 
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b. What is the opportunity cost of expanding the annual output of bananas from  600 to 800?  Opportunity Cost = 100 papayas c. What is the opportunity cost of increasing the annual output of bananas from  200 to 400?  Opportunity Cost = 20 papayas. d. What do your answers to the previous two questions imply about the  opportunity cost of banana production? What does this imply about the slope of  the production possibility frontier?  The more bananas they produce, the more papayas they have to give up to produce an  additional banana, which implies that the opportunity cost increases. The production  possibility is a bowed-out curve with the slope with increasing absolute value. e. Can this economy produce 275 papayas and 800 bananas? Explain. Where  would this point lie relative to the production possibility frontier?
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This economy cannot produce 275 papayas and 800 bananas, because the point  (800,275) lies outside the production possibility frontier, makes it unfeasible. 2.   According to data from the U.S. Department of Agriculture's National 
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This note was uploaded on 10/27/2011 for the course ECON 125 taught by Professor Diannelabert during the Spring '11 term at Hamilton College.

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Problem Set 2 - MyP.Le EC133C Microeconomics...

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