Suppose that we have two inputs that are used in the production of sports entertainment: Mac’s hitting and Tommy’s managing. At the present allocation of resources in the economy the value of Mac’s marginal product is $5,000 while the value of Tommy’s marginal product is $4,000.
a. What is wrong with the current allocation of resources in this economy?
b. How should inputs be reallocated in order to move to a more efficient allocation?