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Microeconomic Theory: QUESTION ANSWERED STEP-BY-STEP

Basic Principles and
Extensions
Christopher Snyder, Walter Nicholson
In the country of Ruritania there are two regions, and . Two goods A B (x and y) are produced in both…
10 Edition
In the country of Ruritania there are two regions, and . Two goods A B (x and y) are produced in both regions. Production functions for region are given by A

Chapter 13, Problem 6 x

−−
= √lx
A

1 Economic Models
−−
y = √ly
A

2 Mathematics for Microeconomics

3 Preferences and Utility
here and are the quantities of labor devoted to and production, respectively. Total labor available in region is 100 units; that is,
4 Utility Maximization and Choice
lx ly x y A

5 Income and Subtitution Effects lx + ly = 100

6 Demand Relationships among Goods

7 Uncertainty and Information
8 Strategy and Game Theory Using a similar notation for region , production functions are given by
B

9 Production Functions 1 −−
xB = √lx

10 Cost Functions 2

1
−−
y = √ly
B

11 Profit Maximization
2

12 The Partial Equilibrium Competitive Model

13 General Equilibrium and Welfare There are also 100 units of labor available in region B :

13.0 General Equilibrium and Welfare

lx + ly = 100

Problem 1A
Problem 1B
a. Calculate the production possibility curves for regions and . A B

Problem 1C
b. What condition must hold if production in Ruritania is to be allocated efficicntly between regions and (assuming labor cannot move from one region to the A B

Problem 1D
other)?
Problem 1E
c. Calculate the production possibility curve for Ruritania (again assuming labor is immobile between regions How much total can Ruritania produce if total ). y x

Problem 1F
output is 12? Hint: graphical analysis may be of some help here.
A

Problem 1G
Problem 1H
Problem 1I
Problem 1J
Problem 1K
Problem 1L
Problem 1M Instant Solution:
Problem 1N
Problem 1O Step 1/4

Problem 1P To find the production possibility curves for regions A and B, we need to express one good in terms of the other good using the production functions and
Problem 1Q labor constraints. For region A: We have lx + ly = 100 . We can express in terms of
ly lx as ly = 100 − lx . Now, substitute this into the production function for y
A
:
Problem 1R
−−−−−− −

Problem 2S
y = √100 − lx
A

Problem 2B Now, substitute the production function for x into this equation:
A

Problem 2C
Problem 2D
−−−−−−−−

y = √100 − x2
A
A

Problem 2E
Problem 2F This is the production possibility curve for region A. For region B: Similarly, we have lx + ly = 100 . We can express in terms of
ly lx as ly = 100 − lx . Now, substitute this
Problem 2G into the production function for yB :
Problem 2H
1 −−−−−− −

Problem 2I
yB = √100 − lx
2

Problem 2J
Now, substitute the production function for x
B
into this equation:
Problem 2K
Problem 2L y
B
=
1 −−−−−−−−
√100 − 4x
2
B
−

Problem 2M
Problem 2N This is the production possibility curve for region B. b. For production to be allocated efficiently between regions A and B, the marginal rate of
Problem 2O transformation (MRT) must be equal in both regions. The MRT is the rate at which one good can be transformed into another good, and it is given by the
Problem 2P negative of the slope of the production possibility curve. For region A, the MRT is:
Problem 2Q dy x
A 1 A

Problem 2R
M RT = − = −
A −−−−−−−−
dx 2
A 2
√100 − x
A

Problem 3S
Problem 3B For region B, the MRT is:
Problem 3C
dy 1 2x
B B

Problem 3D M RTB = −
dxB
= −
2
−−−−−−−−
√100 − 4x
2
−

Problem 3E
Problem 3F For efficient allocation, M RT
A
= M RTB .
Problem 3G
Problem 3H Step 2/4
Problem 3I Therefore,
Problem 3J
1 xA 1 2xB

Problem 3K −
2
−−−−−−−

√100 − x
2
−
= −
2
−−−−−−−−
√100 − 4x
2
−

B
A

Problem 3L
Problem 3M c.
Problem 3N
Problem 3O Step 3/4
Problem 3P To find the production possibility curve for Ruritania, we need to add the production possibility curves for regions A and B. Let x
R
= x
A
+ x
B
and y
R
= y
A
+ y
B
. Then,
Problem 3Q
−−−−−−−−

Problem 3R
1 −−−−−−−− −
y = √100 − x2 + √100 − 4x
2
R
A B
2

Problem 4S
Problem 4B Now, we need to express xB in terms of x
A
and xR . We have xR = x
A
+ xB , so xB = xR − x
A
. Substitute this into the equation for yR :
Problem 4C −−−−−−−
2
−
1 −−−−−−−−−−−−−−−−
2
yR = √100 − x + √100 − 4(x − x )
R

Problem 4D
A A
2

Problem 4E This is the production possibility curve for Ruritania.

Problem 4F
Problem 4G
Answer
Problem 4H
To find the total $y
Problem 4I
Problem 4J
Problem 4K
Problem 4L
Problem 4M
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Problem 4N
Problem 4O
Problem 4P
Problem 4Q
Problem 4R
Problem 5S
Problem 5B
Problem 5C
Problem 5D
Problem 5E
Problem 5F
Problem 5G
Problem 5H
Problem 5I
Problem 5J
Problem 5K
Problem 5L
Problem 5M
Problem 5N
Problem 5O
Problem 5P
Problem 5Q
Problem 5R
Problem 6S
Problem 6B
Problem 6C
Problem 6D
Problem 6E
Problem 6F
Problem 6G
Problem 6H
Problem 6I
Problem 6J
Problem 6K
Problem 6L
Problem 6M
Problem 6N
Problem 6O
Problem 6P
Problem 6Q
Problem 6R
Problem 7S
Problem 7B
Problem 7C
Problem 7D