ONLY ANSWER PART b Please answer Part B in full and please do not copy from other answers and please provide full solution with clear steps and explanations. IF YOU ARE NOT CONFIDENT THEN DO NOT WASTE MY CHANCES TO ASK THE QUESTION. As they are not for Free a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There aretwo goods available, good x, and good y. The marginal rates of substitution (where good x ison the horizontal axis and good y is on the vertical axis) are given by MRSM = 2yM/XM forMohammed, MRSxy = 2yD/xD for David and MRSy = ys/xs for Mohammed and David areboth consuming twice as much of the good x than good y, while Susan is consuming equalamounts of x and y. What are the conditions for Pareto efficiency in an exchange economy?Are these consumption levels economically efficient? Can these consumption allocations beobserved in a perfectly competitive equilibrium in an exchange economy without production?Explain.b) There are two firms in the economy. Each firm employs positive amounts of capital andlabour. The technology satisfies diminishing marginal rate of technical substitution of labourfor capital. Currently, A's marginal rate of technical substitution of labour for capital is 4 whileB's marginal rate of technical substitution of labour for capital is 2. Is the current production ofthe two firms efficient? If not, describe an exchange of inputs that would improve efficiency.Can these production levels of the two firms be observed in a perfectly competitive equilibriumof a production and exchange economy? Explain.

***Since the student has mentioned only answering part B of the question, only part B of the…

b) There are two firms in the economy. Each firm employs positive amounts of capital and labour. The technology satisfies diminishing marginal rate of technical substitution of labour for capital. Currently, A's marginal rate of technical substitution of labour for capital is 4 while B's marginal rate of technical substitution of labour for capital is 2. Is the current production of the two firms efficient? If not, describe an exchange of inputs that would improve efficiency. Can these production levels of the two firms be observed in a perfectly competitive equilibrium of a production and exchange economy? Explain.

b) There are two firms in the economy. Each firm employs positive amounts of capital and labour. The technology satisfies diminishing marginal rate of technical substitution of labour for capital. Currently, A's marginal rate of technical substitution of labour for capital is 4 while B's marginal rate of technical substitution of labour for capital is 2. Is the current production of the two firms efficient? If not, describe an exchange of inputs that would improve efficiency. Can these production levels of the two firms be observed in a perfectly competitive equilibrium of a production and exchange economy? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

ONLY ANSWER PART b Please answer Part B in full and please do not copy from other answers and please provide full solution with clear steps and explanations. IF YOU ARE NOT CONFIDENT THEN DO NOT WASTE MY CHANCES TO ASK THE QUESTION. As they are not for Free

a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There are
two goods available, good x, and good y. The marginal rates of substitution (where good x is
on the horizontal axis and good y is on the vertical axis) are given by MRSM = 2yM/XM for
Mohammed, MRSxy = 2yD/xD for David and MRSy = ys/xs for Mohammed and David are
both consuming twice as much of the good x than good y, while Susan is consuming equal
amounts of x and y. What are the conditions for Pareto efficiency in an exchange economy?
Are these consumption levels economically efficient? Can these consumption allocations be
observed in a perfectly competitive equilibrium in an exchange economy without production?
Explain.
b) There are two firms in the economy. Each firm employs positive amounts of capital and
labour. The technology satisfies diminishing marginal rate of technical substitution of labour
for capital. Currently, A's marginal rate of technical substitution of labour for capital is 4 while
B's marginal rate of technical substitution of labour for capital is 2. Is the current production of
the two firms efficient? If not, describe an exchange of inputs that would improve efficiency.
Can these production levels of the two firms be observed in a perfectly competitive equilibrium
of a production and exchange economy? Explain.

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