20 Jun 2018

1.Production efficiency.

A)state the condition for production in terms of which slopes are equal. use terms such as MRS,MRTS,MRT,and/or - P horizontal/P vertical P horizontal refers to the price of the good on the horizontal axis. Use subscripts and/or superscripts on MRS and MRTS as appropriate. In this case, P horizontal is the cost of labor (w)and P vertical is the cost of capital(r)

B) Draw an Edgeworth box for production efficiency. The K and L isoquants should show both inefficient ( crossing and efficient ( tangent) relationships.

C) Explain why points at isoquant intersection are inefficient. This answer has nothing to do with the answer to 1a above. The answer to this question is not whether the curves cross or are tangent but rather what happens to production levels at the same cost as production is moved to an efficient point on the contract curve.

D) State two governmental policies which could cause the production mix to remain at an inefficient point. This is the same as saying what policies could prevent the prices of the two factors of production(w/r) from adjusting to offer the same relative cost of inputs to all producers.

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Trinidad Tremblay
Trinidad TremblayLv2
21 Jun 2018

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