Figure 16.4.1 -A competitive equilibrium is efficient in the production and exchange of two goods X and Y when: A) MRS_XY = MRT_LK (where L = labor input and K = capital input). B) MRT_XY = MRS_LK (where L = labor input and K = capital input). C) MRS_XY = MRT_XY. D) MC_X/MC_Y= P_Y/P_X.

Question

Quizplus · Accepted Answer

In a competitive equilibrium, efficiency in production and exchange is achieved when the Marginal Rate of Substitution (MRS) between two goods X and Y is equal to the Marginal Rate of Technical Substitution (MRTS) between the same two goods. This condition ensures that resources are allocated in a way that maximizes utility for consumers and production efficiency for firms.

Figure 16.4.1 -A Competitive Equilibrium Is Efficient in the Production and Exchange