Maccro tut 2 Class Problems

Maccro tut 2 Class Problems - Business Macroeconomics,...

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Business Macroeconomics, Tutorial 2 CFO: POM, 9 th edition Chapter 2.; MP: M, 9 th ed. Chapter 2 Tutorial 2. The Economic Problem 1. 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. b. If Brazil produces 40 barrels of ethanol a day, how much food must it produce if it achieves production efficiency? c. Why does Brazil face a tradeoff on its PPF ? 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? 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? f. What is the relationship between your answers to d and e? g. Does Brazil face an increasing opportunity cost of ethanol? What feature of the PPF that you’ve drawn illustrates increasing opportunity cost? 2. Distinguish between production efficiency and allocative efficiency. Explain why many production possibilities achieve production efficiency but only one achieves allocative efficiency.
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This note was uploaded on 06/07/2011 for the course ECON 3 taught by Professor Dd during the Spring '11 term at Alvin CC.

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Maccro tut 2 Class Problems - Business Macroeconomics,...

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