Question 1 (2 points)

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Refer to Table 2-7. The Shellfish Shack produces only shrimp and oysters. The table below shows the maximum possible output combinations of the two types of shellfish using all resources and currently available technology.(1/2)*4 = 2 marks

Possible Output Combinations

Shrimp

(thousands of pounds)

Oysters

(thousands of pounds)

A

35

0

B

30

20

C

25

35

D

20

47

E

15

57

F

10

64

G

5

68

H

0

70

a. Suppose The Shellfish Shack is currently producing at point E. What is the opportunity cost of producing an additional 7,000 pounds of oysters?

b. Suppose The Shellfish Shack is currently producing at point E. What happens to the opportunity cost of producing more and more shrimp? Does it increase, decrease, or remain constant?

c. Suppose The Shellfish Shack is currently producing at point B. What happens to the opportunity cost of producing more and more oysters? Does it increase, decrease, or remain constant?

d. Suppose The Shellfish Shack is plagued by a disease which destroys oyster bed and shrimp habitats. What would happen to its PPF? Would it shift inward or outward?