Ethanol can be produced from either sugar or corn. A gallon of ethanol cost 90 to produce

Question:

Ethanol can be produced from either sugar or corn. A gallon of ethanol cost 90 to produce from Brazilian sugarcane and $1 to produce from U.S.corn. The U.S. Department of Agriculture expects 20 percent of the corn harvest to be used to produce ethanol in 2007, an increase of 34 percent from 2006.

a. Doe sthe United States have a comparative advantage in producing ethanol?

b. Will the opportunity cost of producing ethanol in the U.S. increase in 2007?

c. Could the U.S. gain by importing ethanol (or sugarcane) from Brazil?

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...