In Milwaukee, labor (L) and capital (K) are used in combination to produce both motorcycles and beer. In the motorcycle industry, the MRTS_LK is 1; in the beer industry, the MRTS_LK is 3.

a. Is the economy productively efficient? Explain how you know.

b. If, in (a), you indicated that the economy is not productively efficient, suggest a reallocation of labor and capital that can lead to a Pareto improvement—both more motorcycles and more beer!