Question

3. 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.

Year	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

Examine the Maximum annual output options table above and the resulting Production Possibility Frontier Graph below and answer questions from a-e.

a.   Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain.

b.   What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

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

d.   Can you explain why the answers to parts b and c are not the same?

e.   What does this imply about the slope of the production possibility frontier?

Answer 1

A) No, as this production point would lie outside the PPF

The economy can only produce 500 fish with 600 potatoes

B) 200 pounds of fish

Reason: Increasing production of potatoes from 600 to 800 would involve giving up 500-300 = 200 pounds fish

C) 50 pounds of fish

Reason: Increasing production of potatoes from 200 to 400 would involve giving up 650-600 = 50 pounds of fish

D) Yes, this is because of the law of increasing opportunity cost of production

Where in opportunity cost of producing one good increases as we move along the PPF

E) Negative slope because more units of one good will have to be given up in order to produce more of other good.