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?
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?
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.4P
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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 units of X and Y will be produced?
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