There are two individuals, George and John, living on an island.Each individual has the opportunity to produce either coconuts or fish. In one day, George can produce either 14 coconuts or 8 fish, or any linear combination of the two. In one day, John can produce either 9 coconuts or 6 fish, or any linear combination of the two.

2.1) Type in your group's answers below the questions:

What is the marginal cost for George to produce one more fish?

What is the total cost for George to produce 8 fish?

What is the marginal cost for John to produce one more fish?

2.2) Type in your group's answers below the questions:

What is the marginal cost for George to produce one more coconut?

What is the marginal cost for John to produce one more coconut?

Who has an absolute advantage in the production of coconuts?

Who has an absolute advantage in the production of fish?

Who has a comparative advantage in the production of fish?

Who has a comparative advantage in the production of coconuts?

2.3)Draw the production possibility frontier for George and John when they specialize by comparative advantage. Label the line you have drawn.

Show who would produce coconuts and who would produce fish?

2.4) Suppose now that two new people arrive on our island, Hillary and Oliver. Oliver can produce in one day, 4 coconuts or 4 fish, or any linear combination. Hillary, who is afraid of heights and water, is not capable of producing any coconuts or fish. However, Hillary has an MBA. She decides to organize the workers on the island to produce and export fish to the outside world.

Each of the workerson the island agrees to work for her.

2.4a) If she wants to minimize the cost of production, who should produce the first fish?

2.4b) If we used only this worker, how many fish could we have in total?

2.4c) If we produced the maximum number of fish possible with this first worker, how much would it cost in total?

2.4d) What would be the marginal cost of each of the fish produced with this worker?

2.5) Assuming that Hillary always minimizes the cost of production, draw a graph in the space below showing the marginal cost of fish production. Use the vertical axis to measure the marginal cost of fish (in terms of foregone coconuts) and the horizontal axis to measure the quantity of fish produced each day.Label all axes and any lines drawn.