Answer to Question #50458 in Management for nidhi

Question #50458
1. An economy comprises two consumers, 1 and 2, with two consumption goods bi-cycles (b) and wheat . Both consumers have the same utility function μ Bi-cyclesandwheat areproducedbytwofirmswhichuseonlylabouraccordingtotheproductionfunctions b =l and l Both firms are owned by consumer 1, and consumer 2 owns 200 units of labour. (a) Find the production possibility frontier for this economy. (b) Find the competitive equilibrium. (c) Find competitive equilibrium if every consumer owns 100 units of labour and owns one firm. (d) Find the Pareto efficient allocations for this economy.
Expert's answer
Answer on Question #50458, Management, Other(a) A production–possibility frontier (PPF) is a graph representingproduction tradeoffs of an economy given fixed resources. The graph shows the
various combinations of amounts of two commodities that an economy can
produce (e.g., number of guns vs kilos of butter) using a fixed amount of each
of the factors of production. Graphically bounding the production
set for fixed input quantities, the PPF curve shows the maximum possible
production level of one commodity for any given production level of the other,
given the existing state of technology.
(b) In this case, the competitive equilibrium can't be found, as there is not
enough data.
(c) If every consumer owns 100 units of labour and owns one firm, the competitive
equilibrium will change.
(d) We can't find the Pareto efficient allocations for this economy, because
there is not enough data.

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