Work It Out Chapter 2

Question 1 of 4

Work It Out

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You must read each slide, and complete any questions on the slide, in sequence.

Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch 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 (pounds)	Quantity of fish (pounds)
A	1,000	0
B	800	300
C	600	500
D	400	600
E	200	650
F	0	675

Table

Using the data in the table, which of the following graphs depicts the production possibility frontier with potatoes on the horizontal axis and fish on the vertical axis?

Graph a:

The x-axis on the graph is labeled ‘Quantities of potatoes’ in pounds with values from 0 to 1100 in increments of 100. The y-axis is labeled ‘Quantities of fish’ in pounds, with values from 0 to 700 in increments of 100. The points A to F represented in the table are plotted on the graph.

Graph b:

The x-axis on the graph is labeled ‘Quantities of fish’ in pounds with values from 0 to 1100 in increments of 100. The y-axis is labeled ‘Quantities of potatoes’ in pounds, with values from 0 to 1100 in increments of 100. The points A to F represented in the table are plotted on the graph.

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Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain. Where would this point lie relative to the production possibility frontier?

Yes, Atlantis can produce 500 pounds of fish and 800 pounds of potatoes. This point will lie inside the production possibilities frontier.

No, Atlantis cannot produce 500 pounds of fish and 800 pounds of potatoes. This point will lie outside the production possibilities frontier.

Yes, Atlantis can produce 500 pounds of fish and 800 pounds of potatoes. This point will lie on the production possibilities frontier.

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Maximum annual Output options	Quantity of potatoes (pounds)	Quantity of fish (pounds)
A	1,000	0
B	800	300
C	600	500
D	400	600
E	200	650
F	0	675

Table

Assume the economy of Atlantis only produces fish (point F). Calculate the opportunity cost of producing potatoes in 200 pound increments.

Maximum annual Output options	Quantity of potatoes (pounds)	Opportunity cost of Producing potatoes in terms of fish
F	0	-
E	200
D	400
C	600
B	800
A	1,000

Table

To calculate the opportunity cost of producing potatoes (in terms of producing fish) you must calculate the change in quantity of fish produced as potato production is increased. For example, as potato production increases from 0 to 200 pounds, fish production decreases from 675 to 650 pounds. So the opportunity cost of producing the first 200 pounds of potatoes is 25 pounds of fish. Similarly when increasing potato production from 200 to 400 pounds, the result is a decrease in fish production from 650 to 600 pounds. Increasing potato production from 600 to 800 pounds results in a decrease in the production of fish from 500 to 300 pounds, or an opportunity cost of 200 pounds of fish.

Assume the economy of Atlantis only produces fish (point F). Calculate the opportunity cost of producing potatoes in 200 pound increments.

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Which of the following statements regarding the opportunity cost of producing potatoes and the production possibilities frontier is true for the island of Atlantis?

The island of Atlantis has an increasing opportunity cost of producing potatoes and the production possibility frontier is bowed inward.

The island of Atlantis has an increasing opportunity cost of producing potatoes and the production possibility frontier is bowed outward.

The island of Atlantis has a constant opportunity cost of producing potatoes and the production possibility frontier is linear.

The island of Atlantis has an decreasing opportunity cost of producing potatoes and the production possibility frontier is bowed outward.

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Work It OutChapter 2

Question 1 of 4

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