Two firms together employ 20 units of labor and 12 units of capital. For Firm 1, which uses 5 units of labor and 8 units of capital, the marginal products of labor and capital are MP1l = 20 and MP1k = 40. For Firm 2, which uses 15 units of labor and 4 units of capital, the marginal products are MP2l = 60 and MP2k = 30.
a) Draw an Edgeworth box for inputs that shows the allocation of inputs across these two firms.
b) 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.