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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!