04 Question (4 points) Suppose that Katniss and Peeta have been exiled on a dese

Question

04 Question (4 points) Suppose that Katniss and Peeta have been exiled on a deserted island. To feed themselves, they need to catch fish and hunt rabbits. The table below shows the production potential of Katniss and Peeta. If Katniss spends all her time fishing, she can catch 40 fish. If she spends all her time hunting rabbits, she can catch 8 rabbits. Peeta can spend all his time on fish and catch 8 fish or all his time on rabbits and catch 12 rabbits. Both Katnis and Peeta face a constant trade-off between catching fish and hunting rabbits. Weekly Catch Fish 40 8 Rabbits Katniss Peeta 12

Explanation / Answer

Part 2. Answer: Peeta's opportunity cost of catching 1 rabbit is 0.67 fish

Explanation: Peeta has to forgo 8 fishes to catch 12 rabbits. So, Peeta needs to forgo 8/12 = 0.67 fish to catch 1 rabbit. Peeta's opportunity cost of catching 1 rabbit is 0.67 fish.

Part 3. Answer: More than 0.67 fishes and less than 5 fishes

Explanation: Peeta's opportunity cost of catching 1 rabbit is 0.67 fish. Katniss's opportunity cost of catching 1 rabbit = 40/8 = 5 fishes. Sinc Peeta has a lower opportunity cost of catching a rabbit, Peeta will catch rabbits and sell to Katniss. Peeta will sell a rabbit to Katniss as long as Peeta gets more than 0.67 fishes in return. Katniss will buy a rabbit as long as Katniss needs to pay less than 5 fishes for a rabbit.

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