AB 224 Unit 2 Assignment St Atanagio

Unit 2 Assignment: St Atanagio

Name: –

Course Number:–

Section Number:–

Unit Number:– 2

Date:–

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.

Answer: This point will exist outside the production possibility frontier and it will be possible if there is change in technology, change in natural resources, change in labor force and change in humane capital.

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

Answer: Opportunity cost of increasing the annual output of corn from 800 to 1000 pounds is equal to the 200 pounds of poultry. It means we have to forgo 200 pounds of poultry to increase the annual output of corn from 800 to 1000 pounds.

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

Answer: We have to forgo 75 pounds of poultry to increase the annual output of corn from 200 to 400 pounds.

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

So the opportunity cost of increasing the annual output of corn from 200 to 400 pounds is equal to the 75 pounds of poultry.

Answer: In point 3 we have to forgo 200 pounds of poultry to increase output of corn by 200 pounds; here the unitary slope in nature as the same quantity is needed to forgo one good, to acquire the same quantity of other good.

• 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?

In point 4 we have to forgo 75 pounds of poultry to increase output of corn by 200 pounds, in this case they forgo less to attain the same quantity i.e., 200 pounds of corn, so here the narrow slope in nature. The slope of PPF would get a concave shape, a curve like the inner surface of sphere because, the quantity of corn is increasing while the quantity of poultry decreasing.

References

Grading Rubric

• Beggs, Jodi. “The Production Possibilities Frontier.” About.com Economics. N.p., n.d. Web. 11 Apr. 2014. http://economics.about.com/od/production-possibilities/ss/The-Production-Possibilities-Frontier_4.htm.
• Riley, G. “Production Possibility Frontier (“PPF”).” tutor2u | Economics | Business Studies | Politics | Sociology | History | Law | Marketing | Accounting | Business Strategy. tuter2u, 23 Sept. 2012. Web. 10 Apr. 2014. http://tutor2u.net/economics/revision-notes/as-markets-production-possibility-frontier.html.