Draw the contract curve for efficient production

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Reference no: EM132131375

Question: Suppose that there are two industries, one producing X and the other producing Y, which each use both capital K and labor L in the production process. The marginal rate of technical substitution in the Y industry is MRTS =4K /3L and in the X industry is MRTS =7K /2L . Define pareto efficiency and Y X y y x x determine the relationship between the capital-labor ratios in the two industries when production is efficient. Draw the contract curve for efficient production and explain the relationship of the contract curve to the production possibilities frontier.

Reference no: EM132131375

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