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Microeconomics

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Unit Number:           – 2

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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. Examine the following production possibility frontier graph with corn on the horizontal axis and poultry on the vertical axis illustrating these options and showing points 1–7.

 

 

  1. 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?

 

 

 

 

 

 

  1. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?

 

 

 

 

 

 

 

 

  1. What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds?

 

 

 

 

 

 

 

 

 

 

 

 

  1. 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?

 

 

 

 

 

 

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References:

 

 

 

 

 

 

 

…………..Answer Preview……………..

The production possibility frontier for St. Ataganio shows the output of poultry and corn depending on how the resources are distributed in the production process.

Question 1

            According the graph, there it is not possible to produce 650 units of corn and 650 units of poultry. This is because the resources needed to produce………………

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