Australia produces ethanol from sugar cane, and the land used to grow sugar cane is used to grow food crops. Suppose that Australia’s production possibilities for ethanol and food crops are as in the table.
- (a) If Australia increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of an additional barrel of ethanol? (2 marks)
- (b) Does Australia face an increasing opportunity cost of ethanol? What feature of Australia’s PPF illustrates increasing opportunity cost? Explain. (2 marks)