Two important industries on the island of Bermuda are fishing and tourism. According to the data from the food and agriculture organization of the United Nations and the Bermuda Department of Statistics, in 2014 the 315registered fisherman in Bermuda caught 497 metric tons of marine fish. And the 2,446 people employed by hotels produced 580, 209 hotel stays (measured by the number of visitor arrivals). Suppose that this production point is efficient in production. Assume also that the opportunity cost of 1 additional metric ton fish is 2000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change). (a) If all 315 registered fishermen were to be employed by hotels (in addition to the 2,446 people already working in hotels), how many stays could Bermuda produce? (b) If all 2,446 hotel employees were to become fishermen (in addition to the 315 fishermen already working in fishing industry), how many metric tons of fish could Bermuda produce? (c) Draw a production possibility frontier for Bermuda, with fish on the horizontal axis and hotel stays on the vertical axis, and label Bermuda’s actual production point for the year 2014. Concept Introduction: Opportunity Cost: It is the cost of next best alternative activity. For example: A farmer can produce wheat, rice and corn in his field and earns a profit of $100, $200 and $300 per month respectively. Then farmer will choose to grow corn in his field because he will get maximum profit by growing corn. So, the opportunity cost of growing corn will be $200 because the best alternative activity is growing rice because it will give him $200 per month.

Question

1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.

Answer 1

Question

Chapter 2, Problem 1P

To determine

Two important industries on the island of Bermuda are fishing and tourism. According to the data from the food and agriculture organization of the United Nations and the Bermuda Department of Statistics, in 2014 the 315registered fisherman in Bermuda caught 497 metric tons of marine fish. And the 2,446 people employed by hotels produced 580, 209 hotel stays (measured by the number of visitor arrivals). Suppose that this production point is efficient in production. Assume also that the opportunity cost of 1 additional metric ton fish is 2000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change).

(a)
If all 315 registered fishermen were to be employed by hotels (in addition to the 2,446 people already working in hotels), how many stays could Bermuda produce?
(b)
If all 2,446 hotel employees were to become fishermen (in addition to the 315 fishermen already working in fishing industry), how many metric tons of fish could Bermuda produce?
(c)
Draw a production possibility frontier for Bermuda, with fish on the horizontal axis and hotel stays on the vertical axis, and label Bermuda’s actual production point for the year 2014.
Concept Introduction:

Opportunity Cost:

It is the cost of next best alternative activity. For example: A farmer can produce wheat, rice and corn in his field and earns a profit of $100, $200 and $300 per month respectively. Then farmer will choose to grow corn in his field because he will get maximum profit by growing corn. So, the opportunity cost of growing corn will be $200 because the best alternative activity is growing rice because it will give him $200 per month.

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