Suppose capital and labor are perfect substitutes in production for clothing: 2 units of capital or 2 units of labor produce 1 unit of clothing. Suppose capital and labor are perfect complements in production for food: 1 unit of capital and 1 unit of labor produce 1 unit of food. Suppose the economy has an endowment of 100 units of capital and 200 units of labor. a. Describe the set of efficient allocations of the factors to the two sectors (determine the contract curve in an Edgeworth production box). b. Construct the production possibilities frontier for the economy described. What is the opportunity cost of food in terms of clothing? c. Construct the production possibilities frontier for an economy just like the one described, except that its endowment of capital is 200 units.

Suppose capital and labor are perfect substitutes in production for clothing: 2 units of capital or 2 units of labor produce 1 unit of clothing. Suppose capital and labor are perfect complements in production for food: 1 unit of capital and 1 unit of labor produce 1 unit of food. Suppose the economy has an endowment of 100 units of capital and 200 units of labor. a. Describe the set of efficient allocations of the factors to the two sectors (determine the contract curve in an Edgeworth production box). b. Construct the production possibilities frontier for the economy described. What is the opportunity cost of food in terms of clothing? c. Construct the production possibilities frontier for an economy just like the one described, except that its endowment of capital is 200 units.

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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