Question: The output efficiency condition applies both when firms produce different products (like food and housing), and when they produce the same product. For example, suppose
The output efficiency condition applies both when firms produce different products (like food and housing), and when they produce the same product. For example, suppose firms A and B both produce apples, and that A's apples are perfect substitutes for B's. In this case, the output efficiency condition tells us to allocated inputs between firms A and B so as to maximize total apple production. Explain why. (Your answer should explain why that conclusion follows from the equivalence between marginal rates of substitution and transformation for the products of firms A and B).
Step by Step Solution
3.43 Rating (178 Votes )
There are 3 Steps involved in it
This is because if the goods are perfect substitutes there are no gains from trade ... View full answer
Get step-by-step solutions from verified subject matter experts
Document Format (1 attachment)
847-B-E-D-S (2936).docx
120 KBs Word File
