A farmer works on a plot of land owned by a landlord. The figure below illustrates the feasible combinations of free time and bushels of grain. Why does the farmer’s feasible frontier slope down? Why is it concave? The farmer’s reservation option is a job that pays 20 bushels of grain for 10 hours of work - this option is labeled Z in the figure. What is the name of the curve running through Z? What does this curve illustrate? Why does it have the shape it has? If the landlord knows the farmer’s feasible frontier, along with the other curve given in the figure, then they will make the take-it-or-leave-it offer implied by point X in the figure. How does this point relate to the distance between the two curves? How does this point relate to MRS and MRT?
A farmer works on a plot of land owned by a landlord. The figure below illustrates the feasible combinations of free time and bushels of grain. Why does the farmer’s feasible frontier slope down? Why is it concave? The farmer’s reservation option is a job that pays 20 bushels of grain for 10 hours of work - this option is labeled Z in the figure. What is the name of the curve running through Z? What does this curve illustrate? Why does it have the shape it has? If the landlord knows the farmer’s feasible frontier, along with the other curve given in the figure, then they will make the take-it-or-leave-it offer implied by point X in the figure. How does this point relate to the distance between the two curves? How does this point relate to MRS and MRT?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Sharing the Surplus
A farmer works on a plot of land owned by a landlord. The figure below illustrates the feasible combinations of free time and bushels of grain.
- Why does the farmer’s feasible frontier slope down? Why is it concave?
- The farmer’s reservation option is a job that pays 20 bushels of grain for 10 hours of work - this option is labeled Z in the figure. What is the name of the curve running through Z? What does this curve illustrate? Why does it have the shape it has?
- If the landlord knows the farmer’s feasible frontier, along with the other curve given in the figure, then they will make the take-it-or-leave-it offer implied by point X in the figure. How does this point relate to the distance between the two curves? How does this point relate to MRS and MRT?
- What is the (approximate) surplus in bushels under the landlord’s take-it-or-leave-it offer? How is the surplus split between the farmer and landlord?
- Is this
allocation efficient ? Is it fair? Briefly explain your reasoning.
![100
85
25
Z
20
12 14
24
Hours of free time
Bushels](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdda27124-7875-471b-843a-33c00cd7b3d5%2F4fdc3ecf-3921-400b-8745-57824d203e06%2Frh7sw4j_processed.png&w=3840&q=75)
Transcribed Image Text:100
85
25
Z
20
12 14
24
Hours of free time
Bushels
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