Table 1 shows Robinson Crusoes production possibilities. 1. What is his opportunity cost of a pound of
Question:
Table 1 shows Robinson Crusoe’s production possibilities.
1. What is his opportunity cost of a pound of berries when Crusoe increases the quantity of berries from 21 pounds to 26 pounds and production is efficient? Does this opportunity cost increase as he produces more berries?
2. If Crusoe is producing 10 pounds of fish and 21 pounds of berries, what is his opportunity cost of an extra pound of berries? And what is his opportunity cost of an extra pound of fish? Explain your answers.
Transcribed Image Text:
TABLE 1 Fish Possibility (pounds) A B C D EFCHI G Berries (pounds) and 36 35 33 0 4.0 and 7.5 and 10.5 and 30 13.0 and 26 21 15.0 and 16.5 and 15 17.5 and 18.0 and 80
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1 If Crusoes production is efficient he is producing at a point on his PPF His opportunity cost of an extra pound of berries is the quantity of fish he must give up to get the berries It is calculated as the decrease in the quantity of fish divided by the increase in the quantity of berries as he moves along his PPF To increase the quantity of berries from 21 pounds to 26 pounds from row F to row E of Table 1 production of fish decreases from 15 pounds to 13 pounds To gain 5 pounds of berries Crusoe must forgo 2 pounds of fish The opportunity cost of 1 pound of berries is the 2 pounds of fish forgone divided by 5 pounds of berries gained25 of a pound of fish Crusoes opportunity cost of berries increases as he produces more berries To see why move Crusoe from row E to row D in Table 1 His production of berries increases by 4 pounds and his production of fish falls by 25 pounds His opportunity cost of 1 pound of berries increases to 58 of a pound of fish 2 Figure 1 graphs the data in Table 1 and shows Crusoes PPF If Crusoe is producing 10 pounds of fish and 21 pounds of berries he is producing at point Z Point Z is a point inside Crusoes PPF When Crusoe produces 21 pounds of berries he has enough time available to produce 15 pounds of fish at point F on his PPF To produce more fish Crusoe can move from Z toward F on his PPF and forgo no berries His opportunity cost of a ...View the full answer
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