Microeconomics Corso E John Hey. Chapter 14 Production possibility frontiers. Case 1: linear...

MicroeconomicsCorso E

John Hey

Chapter 14

• Production possibility frontiers.

• Case 1: linear technology ... two people.

• Case 2: non-linear technology ... two firms and two inputs.

Case 1

• Two individuals A and B. Two goods 1 and 2.• Individual A can produce 120 units of good 1 or

60 units of good 2 ... or any linear combination, for example 60 of good 1 and 30 of good 2.

• Individual B can produce 20 units of good 1 or 40 units of good 2 ... or any linear combination, for example 10 of good 1 and 20 of good 2.

• Let’s go to Maple.

Case 2

• Two firms A and B. Two produced goods 1 e 2. Two inputs 1 and 2.

• Firm A has Cobb-Douglas technology with parameters a=0.63 and b=0.27.

• Firm B has Cobb-Douglas technology with parameters a=0.54 and b=0.36.

• The quantities of the two inputs in society are100 and 100.

• Society has to allocate the inputs to the two firms.

• Let’s go to Maple.

Chapter 14 Summary

• In a linear society the production possibility frontier is concave.

• In a non-linear society with decreasing returns to scale the production possibility frontier is concave.

Capitolo 14

• Goodbye!