Answered: combined production function

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

Figure shows the combined production function of Angela and Bruno.

If the government introduces a new social welfare program to cater to the poor of the society, wherein the reservation wage increases from 2 bushels of wheat to 6 bushels of wheat how would you model the situation? Draw a new diagram to show the impact of this welfare program and comment on who do you think would benefit from this intervention? Additionally, does the outcome of this intervention results in an allocation which is a pareto efficient one? Explain your reasoning.
(Please Make sure your diagram is fully labelled)

Angela's biological Angela's reservation
survival constraint indifference curve
12
9
4.5
D
B
What
Feasible frontier:
Angela gets
Angela and Bruno
combined
13 16
24
Angela's hours of free time
Bushels of grain

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