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- ANSWER ONLY SUBPART 4 Suppose the economy has 100 units of labor (L) and 100 units of capital (K), and it chooses to allocate three times more labor and capital in the production of good X than in good Y. Suppose also that the production of goods X and Y are represented by the following functions: X = LX0.25KX0.25; Y = 2LY0.25KY0.25. Compute for Lx, Ly, Kx and Ky Calculate the MRTSLK of each firm Is this allocation efficient? How so? How many unit of X and Y will be produced?What is the marginal rate of substitution at point A? Interpret this value.29. Why is the point of isoquant tangent to the isocost called the optimal combination? Explain.
- Define Cobb-Douglas production. How does the elasticity of substitution (assume sigma = 1) between two inputs affect the shape of a single ISOQUANT? Use a diagram to support your answer.Calculate your marginal rate of substitution as a function of B and C. U(B,C)=B^(1/4)C^(3/4)Find the marginal rate of substitution for Household A.