Question

Assume that the operators of the fishing boat, “The Bearly Afloat” have a
choice between using their boat for commercial fishing or for providing fishing
excursions for small groups of tourists. Using the data below, construct a
diagram of the Production Possibilities Curve for the operators from the data
in the following table:
Table: Production Possibilities for the “Bearly Afloat”
Fish Catch Fishing Excursions
(Kilos p a.) (trips p.a)
16000 and 0
14000 “ 30
12000 “ 48
10000 “ 63
8000 “ 75
6000 “ 84
4000 “ 90
2000 “ 93
0 “ 96
(b) If the operators choose to raise fish production from 10000 to 12000 kilos,
what is the opportunity cost of doing this?
(c) Explain why the opportunity cost changes at every level of production? (5
marks)
(d) Assume that the operators of the “Bearly Afloat” can earn an average $12 per
kilo for any fish caught or earn an average $1000 from each tourist fishing
excursion trip.
Consider the following two production choices:
(a) Catch 12000 kilos of fish and provide 48 excursion trips
(b) Catch 8000 kilos of fish and provide 75 excursion trips
What is the ($) dollar value of choice (a)
What is the ($) dollar value of choice (b)
Which choice (a) or (b) will maximise earnings for the operator

Answer 1

(a) The Production Possibilities Frontier of the given data taking Fish Catch (in Kilos p.a.) in the X-axis and Fishing Excursions (No. of Trips p.a.) in the Y-axis is shown below:

(b) The opportunity cost of raising fish production from 10000 to 12000 kilos,

Opportunity Cost= Fish Excursions sacrificed/Change in Fish Catch

From the following table, we get,

Fish Excursions sacrificed for 2000 kilos of extra fish catch (to raising fish production from 10000 to 12000 kilos)=15 trips

Thus, Opportunity Cost of 1 kilo of extra fish catch= 15/2000 = 0.0075

(c) Opportunity cost changes at every level of production because of the law of diminishing returns i.e. for more and more fish catch, the operator has to sacrifice more and more fish excursions. It occurs because not all factor inputs are equally suited to producing items.

(d) Given, Bearly Afloat can earn an average $12 per kilo for any fish caught or earn an average $1000 from each tourist fishing excursion trip.

Then,

(a) Catch 12000 kilos of fish and provide 48 excursion trips=12000*12+48*1000=144000+48000=$1920000
(b) Catch 8000 kilos of fish and provide 75 excursion trips=8000*12+75*1000=96000+75000=$171000
Hence the choice (a) will maximise earnings for the operator because $1920000>$171000.