16.18. Two firms together employ 20 units of labor and 12 units of capital. For Firm 1, which uses 5 units of labor and 8 units of capital, the marginal products of labor and capital are MP11 = 20 and MP1K = 40. For Firm 2, which uses 15 units of labor and 4 units of capital, the marginal products are MP21 = 60 and MP2K = 30. a) Draw an Edgeworth box for inputs that shows the allocation of inputs across these two %3D firms. b) Is this allocation of inputs economically efficient? Why or why not? If it is not, identify a reallocation of inputs that would allow both firms to increase their outputs.

16.18. Two firms together employ 20 units of labor and 12 units of capital. For Firm 1, which uses 5 units of labor and 8 units of capital, the marginal products of labor and capital are MP11 = 20 and MP1K = 40. For Firm 2, which uses 15 units of labor and 4 units of capital, the marginal products are MP21 = 60 and MP2K = 30. a) Draw an Edgeworth box for inputs that shows the allocation of inputs across these two %3D firms. b) Is this allocation of inputs economically efficient? Why or why not? If it is not, identify a reallocation of inputs that would allow both firms to increase their outputs.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.2P

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