Opportunity cost of increasing the annual output


Problem: 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

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

Question 2: 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?

Question 3: What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?

Question 4: What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds?

Question 5: 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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