Chapter 2, Problem 1P

To determine

1. Total hotel stays produced if fishermen employed by the hotel
2. Total metric tons of fish produced if hotel employees become fishermen
3. A production possibility frontier for Bermuda

Opportunity Cost

Opportunity Cost is the loss of benefit incurred by a person by choosing an alternative course of action.

(a) Total hotel stays produced if fishermen employed by the hotel, (b) total metric tons of fish produced if hotel employees become fishermen and (c) a production possibility frontier for Bermuda.

Explanation of Solution

(a) A total number of hotel stays produced if fishermen employed by the hotel.

• The opportunity cost of one metric ton fish is 2,000 hotel stays.
• Production of 306 fishermen is 387 metric ton fish.
• Thus, the total number of hotel stays produced by 306 fishermen will be 774,000.
• The total number of hotel stays produced by Bermuda will be 1,328,400.

Working Notes:

Conclusion:

Thus, the total hotel stays are 1,328,400.

(b) A total metric ton of fish produced by Bermuda if hotel employees become fishermen.

• The opportunity cost of one metric ton fish is 2,000 hotel stays.
• Total hotel stays produced by the 2,719 employees of the hotel are 554,400.
• Thus, the production of fish by hotel employees will be 277.2 metric ton.
• The total fish produced by Bermuda will be 664.2 metric ton.

Working Notes:

Conclusion:

Thus, the total fish produced are 664.2 metric ton.

(c) Draw a production possibility frontier for Bermuda.

PPF for Bermuda for the year 2009

• The PPF is a straight line for Bermuda because the opportunity cost for two industries is constant.

• If all the resources are concentrated on the tourism industry, then the total hotel stays shall be 1,328,400 as shown on the vertical axis.

• If all the resources are concentrated on the fishing industry, then the total fish production shall be 664.2 metric ton as shown on the horizontal axis.

• The current production of Bermuda is shown by point A that shows the production of 554,400 hotel stays and 387 metric ton fish.

Conclusion:

Thus, the PPF for Bermuda is a straight line due to constant opportunity cost.