2a. The production possibilities frontier is
illustrated in Figure 3.3.
2b. Producing 50 units of good food and 50 units
of entertainment is attainable. However, at
this production point, Leisure Island’s
resources are not fully employed. The
opportunity cost of an additional unit of
entertainment is zero.
2c. Producing 40 units of entertainment and 60
units of good food is attainable. The
opportunity cost of one unit of entertainment
is 1/2 unit of good food. The opportunity cost
is 1/2 unit of good food because for the island
to produce 20 more units of entertainment it
would have to give up 10 units of good food.
The opportunity cost of another unit of
entertainment equals the units of good food
forgone, 10, divided by the units of entertainment obtained, 20, or 10  20,
or 1/2 unit of good food per unit of entertainment. There is a tradeoff
because the island is operating on its production possibilities frontier.
2d. The opportunity cost of each unit of good food rises as Leisure Island
allocates more resources to producing good food.
2e. The marginal cost of a unit of entertainment is 0.75 unit of food. When
increasing from 60 to 80 units of entertainment, you must give up 20 units
of food. The opportunity cost of 1 unit of entertainment is 1 unit of food.
When increasing from 40 to 60 units of entertainment, you must give up 10
units of food. The opportunity cost of 1 unit of entertainment is 0.5 unit of
food. So at 60 units of entertainment, the marginal cost of a unit of
entertainment is 0.75 unit of food.
2f. If 40 units of entertainment is the efficient quantity, then the marginal cost
of entertainment must equal the marginal benefit at this point. At 40 units
of entertainment, the marginal cost and the marginal benefit of
entertainment is 0.375 unit of food.