Microeconomics BUS 224 Unit 2 – St Atanagio is a remote island in the Atlantic

St Atanagio is a remote island in the Atlantic. The inhabitants grow corn and breed poultry. The accompanying table shows the maximum annual output combinations of corn and poultry that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for corn production, there are fewer resources available for breeding poultry.
Maximum annual output options Quantity of Corn
(pounds) Quantity of Poultry
(pounds)
1 1200 0
2 1000 300
3 800 500
4 600 600
5 400 700
6 200 775
7 0 850

1. Draw a production possibility frontier with corn on the horizontal axis and poultry on the vertical axis illustrating these options, showing points 1–7.

2. Can St. Atanagio produce 650 pounds of poultry and 650 pounds of corn? Explain. Where would this point lie relative to the production possibility frontier?

3. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?
The opportunity that can be applicable to boost the output of the corn from 800 to 1000 pounds is to accumulate 200 pounds of fish. If St. Atanagio needs to do this, it is necessary to cut the quantity of poultry produced from 500 to 300 pounds.

4. What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds?
Increasing the annual output of corn from 200 to 400 pounds gives an opportunity to gain cost of 75 pounds of poultry extra. This means that if St. Atanagio wants to do this increase, it is required to cut poultry production by 75 pounds.

5. Can you explain why the answers to parts 3. and 4. above are not the same? What does this imply about the slope of the production possibility frontier?

Here’s the SOLUTION

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