Mid Term
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.
Production Possibility Frontier Graph
[pic]
b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes?
A) No, the reason for this is resource limitations.
c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?
A) The opportunity cost in increasing the output is 200 pounds of potatoes.
d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?
A) The opportunity cost in increasing potatoes from 200 to 400 pounds is 50 pounds of fish
e. Can you explain why the answers to parts c and d are not the same?
A) The answers to parts c and d are not the same due to the increase in production cost for each of the operations. If you increase fish production you lose some of the potato production by, moving bodies and equipment to help with production.
f. What does this imply about the slope of the production possibility frontier?
A) This shows that the further you move to the right the steeper the slope becomes.
2. Peter Pundit, an economics reporter, states that the European Union (EU) is
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.
Production Possibility Frontier Graph
[pic]
b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes?
A) No, the reason for this is resource limitations.
c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?
A) The opportunity cost in increasing the output is 200 pounds of potatoes.
d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?
A) The opportunity cost in increasing potatoes from 200 to 400 pounds is 50 pounds of fish
e. Can you explain why the answers to parts c and d are not the same?
A) The answers to parts c and d are not the same due to the increase in production cost for each of the operations. If you increase fish production you lose some of the potato production by, moving bodies and equipment to help with production.
f. What does this imply about the slope of the production possibility frontier?
A) This shows that the further you move to the right the steeper the slope becomes.
2. Peter Pundit, an economics reporter, states that the European Union (EU) is
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