Optimal for representative household in one period model

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Reference no: EM134033302

Question

Explain why it is not optimal for the representative household in the one period model to choose a leisure- consumption pair where the marginal rate of substitution (MRS) between consumption and leisure is larger than the marginal rate of transformation (MRT) between consumption and leisure. How could you increase the welfare of the household? Your explanation should include a discussion of what the MRS and the MRT are/what they measure. You may use a diagram to help with your explanation.

Reference no: EM134033302

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