【導讀】WhyMarketsFail. Uptothispoint,wehavebeenfocused. Scenario. DVDrentals. Scenario. Governmentplacesa$taxoneach. MarketforDVDs. demandformovies.Observation

　　

【正文】 production isoquants to show levels of output produced with each bination of inputs ?3 isoquants representing 50, 60 and 80 units of food ?3 isoquants representing 10, 25 and 30 units of clothing 169。2020 Pearson Education, Inc. 70 Production in an Edgeworth Box 50L 0C 0F 30K 50L 30K Capital in Food Production Capital in Clothing Production Labor in Food Production Labor in Clothing Production 5K 25K 15L 35L 3 isoquants representing food production food and clothing production 10C 60F 50F 25C B 30C A 169。2020 Pearson Education, Inc. Chapter 16 71 Production in an Edgeworth Box ?To find efficient production, must find different binations of inputs used to produce the two outputs ?An allocation of inputs is technically efficient if the output of one good cannot be increased without decreasing the output of another good 169。2020 Pearson Education, Inc. Chapter 16 72 Production in an Edgeworth Box ?Production at point A is inefficient since we can increase production of both goods ?Shaded area indicates increases in production of both goods if begin at A ?Allocation A could exist if a labor union market has enforced inefficient work rules 169。2020 Pearson Education, Inc. 73 Production in an Edgeworth Box 50L 0C 0F 30K 50L 30K Capital in Food Production Capital in Clothing Production Labor in Food Production Labor in Clothing Production 5K 25K 15L 35L Can move from A to B or C which increases efficiency. 10C 60F 50F 25C 30C C D A B Any place in shaded area will increase efficiency from allocation A. 169。2020 Pearson Education, Inc. Chapter 16 74 Production in an Edgeworth Box ?Points B and C are efficient allocations and therefore lie on the production contract curve ?Curve showing all technically efficient binations of inputs ?Curve connects the origins OF and OC ?All points on curve are tangencies between two isoquants 169。2020 Pearson Education, Inc. 75 Production in an Edgeworth Box 50L 0C 0F 30K 50L 30K Capital in Food Production Capital in Clothing Production Labor in Food Production Labor in Clothing Production 5K 25K 15L 35L 10C 60F 50F 25C 30C C D A B Production Contract Curve 169。2020 Pearson Education, Inc. Chapter 16 76 Producer Equilibrium – Competitive Input Markets ?If input markets are petitive, an efficient point will be achieved ?In petitive input markets ?Wage rate, w, will be equal in all industries ?Rental rate of capital, r, will be equal in all industries 169。2020 Pearson Education, Inc. Chapter 16 77 Producer Equilibrium – Competitive Input Markets ?We saw before that if producers minimize costs, they will choose inputs to the point where the ratio of the marginal products of the two inputs is equal to the ratio of input prices: rwMPMPKL ?169。2020 Pearson Education, Inc. Chapter 16 78 Producer Equilibrium – Competitive Input Markets ?Ratio of marginal products is the same as the marginal rate of technical substitution of labor for capital: LKKL M R T SrwMPMP??169。2020 Pearson Education, Inc. Chapter 16 79 Producer Equilibrium – Competitive Input Markets ?The MRTS is the slope of the isoquant, so petitive equilibrium exists only if: ?Slopes of the isoquants are equal to one another ?These also equal the ratio of the prices of two inputs ?Competitive equilibrium lies on the production contract curve, and the petitive equilibrium is efficient in production 169。2020 Pearson Education, Inc. Chapter 16 80 Production Possibilities Frontier ?PPF shows the various binations of two goods that can be produced with fixed quantities of inputs ?Frontier is derived from the production contract curve ?Points on PPF show efficiently produced levels of both goods 169。2020 Pearson Education, Inc. Chapter 16 81 Production Possibilities Frontier Clothing(units) Food (units) ? Point A is inefficient ? Points B, C and D are efficient ? All points in triangle ABC pletely utilize capital and labor, but distortion in labor market leads to inefficient use OF OC D C B A 169。2020 Pearson Education, Inc. Chapter 16 82 Production Possibilities Frontier ?PPF is downward sloping ?In order to produce more of one good, must give up producing some of the other good ?PPF is concave ?Slope is the MRTS which increases as the level of production of food increases 169。2020 Pearson Education, Inc. Chapter 16 83 Production Possibilities Frontier ?Marginal rate of transformation (MRT) of food for clothing is the magnitude of the slope of the frontier at each point ?Amount of one good that must be given up to produce one additional unit of a second good ?How much clothing must be given up to produce one additional unit of food ?As we increase the production of food by moving along the PPF, the MRT increases 169。2020 Pearson Education, Inc. Chapter 16 84 Marginal Rate of Transformation ?The productivity of labor and capital differs depending on whether the inputs are used to produce more food or clothing ?Starting where only clothing is produced, MP of labor and capital are relatively low ?Transferring some to food production where MP is relatively high ?As we do this, MP in food decreases and MP in clothing increases 169。2020 Pearson Education, Inc. Chapter 16 85 Production Possibilities Frontier Clothing(units) Food (units) OF OC D ? MRT = 2 B ? MRT = 1 MRT 1 MRT 1 169。2020 Pearson Education, Inc. Chapter 16 86 Marginal Rate of Transformation ?Can also describe in terms of costs ?When producing at OF, the MC of food is very low and the MC of clothing is very high ?When MRT is low, so is the ratio of the MC of producing food to clothing ?Slope of PPF measures the MC of producing on