Asked by Kristofer Miller on May 11, 2024
Verified
A competitive equilibrium is efficient in the production and exchange of two goods X and Y when:
A) MRSXY = MRTLK (where L = labor input and K = capital input) .
B) MRTXY = MRSLK (where L = labor input and K = capital input) .
C) MRSXY = MRTXY.
D) MCX/MCY = PY/PX.
Competitive Equilibrium
is a condition in a market where supply equals demand, with prices becoming stable at this point.
Capital Input
The resources used in the production process, including buildings, machinery, and equipment.
Labor Input
The total hours of work or number of workers employed in the production of goods and services.
- Explain the conditions for efficiency in production and in the output market, including the roles of marginal rates of substitution and transformation.
Verified Answer
HS
Hassaan SajjadMay 15, 2024
Final Answer :
C
Explanation :
In a competitive equilibrium, efficiency in production and exchange is achieved when the Marginal Rate of Substitution (MRS) between two goods X and Y is equal to the Marginal Rate of Technical Substitution (MRTS) between the same two goods. This condition ensures that resources are allocated in a way that maximizes utility for consumers and production efficiency for firms.
Learning Objectives
- Explain the conditions for efficiency in production and in the output market, including the roles of marginal rates of substitution and transformation.