Answer to Question #332779 in Macroeconomics for nox

Question

 Two firms together employ 20 units of labour and 12 units of capital. Firm A which uses 5 units of labour and 8 units of capital, the marginal products of labour and capital are MPLA=20 and MPKA=40. For firm B, which uses 15 units of labour and 4 units of capital, the marginal products are MPLB=60 and MPKB=30.

i)             Draw an Edgeworth box for inputs that shows the allocation of inputs across these two firms.                            [5 Marks]

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.

Answer 1

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