Question

Leisure Island has 50 hours of labor a day that it can use to produce entertainment and good food. The table shows the maximum quantity of each good that Leisure Island can produce with different quantities of labor 3. If Leisure Island produces 8 shows and 5 meals a week, do the people of Leisure Island face a tradeoff? o A. Yes, it faces a tradeoff. O B. No, it doesn't face a tradeoff 4. Suppose that Leisure Island produces 4 shows and 12 meals a week. Calculate the opportunity cost of producing 2 additional shows a week? The opportunity cost of producing 2 additional shows per week is per week

Answer 1

3. Answer is A. It does face a tradeoff because while producing 8 shows a week the island is using 40 hours of labour. It is now left with 10 hours. In these 10 hours it can produce only 5 good food meals. Thus if it would like to increase good food meals, it has to sacrifice some unit of entertainment show.

4. Opportunity cost: what you sacrifice / what you gain

= 3/2 = 1.5

We can see that 4 shows were produced by using 20 hours of labour and 12 good food meals were produced using 30 hours of labour. Now if we want to produce 2 additional hours of shows, we have to utilise additional 10 hours. Thus we have to sacrifice 10 hours from good food meals. While sacrificing 10 hours in meals, we are sacrificing total 3 units and are gaining 2 units of shows. Thus opportunity cost is 1.5 (as solved above)

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