Answer to Question #214607 in Macroeconomics for Jon

Question

The isoquants for cocoa and coffee (the only two commodities produced in the Ghanaian economy) are given by X1, X2, X3 and Y1, Y2, Y3, respectively and their combinations are represented in Table 1 below. Assuming that only 18L and 12K are available for the production of cocoa and coffee.
X1
X2
X3
Y1
Y2
Y3

L
K
L
K
L
K
L
K
L
K
L
K

3
10
7
9
9
10
3
6
9
9
13
10

4
5
8
7
12
8
6
4
10
5
14
7

6
2
11
4
15
7
15
2
13
3
16
5

Draw the Edgeworth box diagram for cocoa and coffee.
Label the point where both commodities cross each as R
Starting at the point where X1 crosses Y1, show that the output of cocoa, coffee, or both can be increased with the given amounts of 18L and 12K.
Derive the contract curve and indicate what it means.
What is the equilibrium condition that holds along the production contract curve and express it in an algebraic form?
What is the value of the MRTSLK?

Answer 1

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