Brazil produces ethanol from sugar, and the land used to grow sugar can be used to grow food crops. Suppose that Brazil‘s production possibilities for ethanol and food crops are given in the table.

a. Draw a graph of Brazil‘s PPF and explain how your graph illustrates scarcity.

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Figure 2.1 shows Brazil‘s PPF. The production possibilities frontier itself indicates scarcity because it shows the limits to what can be produced. In particular, production combinations of ethanol and food crops that lie beyond the production possibilities frontier are not attainable.

b. If Brazil produces 40 barrels of ethanol a day, how much food must it produce if it achieves production efficiency?

If Brazil produces 40 barrels of ethanol per day, it achieves production efficiency if it also produces 3 tons of food per day.

c. Why does Brazil face a tradeoff on its PPF ?

Brazil faces a tradeoff on its PPF because Brazil‘s resources and technology are limited. For Brazil to produce more of one good, it must shift factors of production away from the other good. Therefore to increase production of one good requires decreasing production of the other good, which reflects a tradeoff.

d. If Brazil increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of the additional ethanol?

When Brazil is production efficient and increases its production of ethanol from 40 barrels per day to 54 barrels per day, it must decrease its production of food crops from 3 tons per day to 2tons per day. Hence the opportunity cost of the additional ethanol’s 1 ton of food per day for the entire 14 barrels of ethanol or1/14 of a ton of food per barrel of ethanol.

e. If Brazil increases its production of food crops from 2 tons per day to 3 tons per day, what is the opportunity cost of the additional food?