Chapter 2: Problem 1

Two important industries on the island of Bermuda are fishing and tourism. According to data from the Food and Agriculture Organization of the United Nations and the Bermuda Department of Statistics, in 2009 the 306 registered fishermen in Bermuda caught 387 metric tons of marine fish. And the 2,719 people employed by hotels produced 554,400 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 of fish is 2,000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change). a. If all 306 registered fishermen were to be employed by hotels (in addition to the 2,719 people already working in hotels), how many hotel stays could Bermuda produce? b. If all 2,719 hotel employees were to become fishermen (in addition to the 306 fishermen already working in the 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 2009 .

Short Answer

Expert verified

Also, draw and label the production possibility frontier for Bermuda's actual production in 2009. Answer: If all fishermen work in hotels, the potential production of hotel stays will be 1,328,400. On the other hand, if all hotel employees become fishermen, the potential fish production will be 388.3595 metric tons. To draw the production possibility frontier, plot a straight line with fish production on the horizontal axis and hotel stays on the vertical axis, connecting the endpoints (0, 1,328,400) and (388.3595, 0). Label Bermuda's actual production point for 2009 as (387, 554,400) on the PPF.

Step by step solution

Calculate the additional hotel stays produced by 306 fishermen

As given, the opportunity cost of 1 additional metric ton of fish is 2,000 hotel stays. So, the combined opportunity cost of 387 metric tons of fish (caught by all 306 fishermen) will be: 387 * 2,000 = 774,000 hotel stays.

Calculate total hotel stays if all fishermen work in hotels

If all 306 registered fishermen were to be employed by hotels (in addition to the 2,719 people already working in hotels), then the total number of hotel stays produced will be: 554,400 (current hotel stays produced) + 774,000 (additional hotel stays) = 1,328,400 hotel stays. #b. Calculate potential fish production#

Calculate the number of metric tons of fish produced by one hotel worker

Given that the opportunity cost of 1 additional metric ton of fish is 2,000 hotel stays, we can calculate the number of metric tons of fish that can be produced by one hotel worker: 1 metric ton / 2,000 = 0.0005 metric tons.

Calculate potential fish production if all hotel employees become fishermen

If all 2,719 hotel workers were to become fishermen, then the potential production of fish will be: 2,719 * 0.0005 = 1.3595 metric tons. Adding this to the current fish production, we get: 387 (current fish production) + 1.3595 = 388.3595 metric tons of fish. #c. Draw a production possibility frontier#

Mark the endpoints of the PPF

The endpoints of the PPF will be: (0, 1,328,400) when all workers are in the hotel industry, producing the maximum number of hotel stays; and (388.3595, 0) when all workers are in the fishery industry, producing the maximum number of metric tons of fish.

Draw the PPF and label Bermuda's actual production point for 2009

To draw the production possibility frontier, plot a straight line with fish (in metric tons) on the horizontal axis and hotel stays on the vertical axis, connecting the two endpoints: (0, 1,328,400) and (388.3595, 0). To label Bermuda's actual production point for 2009, plot the point (387, 554,400), representing the actual fish production and hotel stays in 2009. As per the given information, this point lies on the PPF, indicating efficient production.