Figure 2-10

Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each country produces two goods, milk and honey.
-Refer to Figure 2-10.What is the opportunity cost of producing one gallon of honey in Bora Bora?

Question

Figure 2-10
  
Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each country produces two goods, milk and honey.
-Refer to Figure 2-10.What is the opportunity cost of producing one gallon of honey in Bora Bora?

Quizplus · Accepted Answer

To produce one gallon of honey in Bora Bora, they have to give up producing 2/3 of a gallon of milk (the slope of the production possibility frontier for milk).

The best choice depends on what the countries' goals are. If Tahiti wants to produce more honey per gallon of milk, they should specialize in honey production and trade with Bora Bora for milk. If Bora Bora wants to produce more milk per gallon of honey, they should specialize in milk production and trade with Tahiti for honey. This would allow both countries to consume a combination of the two goods that is outside of their production possibility frontiers.

Figure 2-10 Figure 2-10 Shows the Production Possibilities Frontiers for Tahiti and Possibilities