Corn Atanagi Case Study

a. 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?

No St. Atanagio cannot. The reasoning is that scarcity of resources, because of which we can increase the quantity of one good only when the quantity of the other one decreases. So one of the points is 600,600 which means 600 pounds of corn and poultry each are possible with given resources and technology. It is not possible to increase both goods to take them to 650 each. We can increase only one of the goods, and we have to reduce the other one to stay on the PPF. This increase is not possible with given resources and technology.
To produce 650 of both goods will lead us to a point

b. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds?
The opportunity cost of increasing corn by 200 pounds (=1000-800) is the amount of poultry output that must be sacrificed. We look at two points on PPC-(800,500) and (1000, 300). The increase in corn is accompanied by decrease in poultry by 200 units (=500-300). So opportunity cost of moving from 800 to 1000 pounds of corn is 200 pounds of poultry.

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

The opportunity cost of increasing corn by 200 pounds (=400-200) is the amount of poultry output that must be sacrificed. We look at two points on PPC-(400,700) and (200,775). The increase in corn is accompanied by decrease in poultry by 75 units (=775-700). So opportunity cost of moving from 200 to 400 pounds of corn is 75 pounds of poultry.
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d. Can you explain why the answers to parts b. and c. above are not the same? What does this imply about the slope of the production possibility

This implies that we need to give up more and more of poultry to get more of corn. Initially we get 200 pounds of corn (points 6 and 7) by sacrificing only 25 pounds of poultry (=800-775).
The next 200 pounds of corn come by sacrificing or giving up 75 pounds of poultry (=775-700). This rises to a maximum of 300 pounds of poultry between points 1 and 2(= 300-0)
This implies that slope of PPC rises as we increase the corn quantity. Also the slope is negative as we have to ‘give up’ on poultry to get more of corn. So the slope is negative and the value of slope rises as we move down the curve.

2. Suppose that the supply schedule of Belgium Cocoa beans is as follows:

Price of cocoa beans
(per pound) Quantity of cocoa beans supplied
(pounds)
$40 900
$35 700
$30 500
$25 400
$20 200
Suppose that Belgium cocoa beans can be sold only in Europe. The European demand schedule for Belgium cocoa beans is as follows:

Price of Belgium cocoa beans
(per pound) European Quantity of Belgium cocoa beans demanded
(pounds)
$40 100
$35 300
$30 500
$25 700
$20 900

Below is the graph of the demand curve and the supply curve for Belgium cocoa beans. From the supply and demand schedules above, what are the equilibrium price and quantity of cocoa beans from