In an economy which produces two goods X and Y, using two inputs L and K, efficient input use occurs when: A) MRTS_LK^X = MRS_LK^Y. B) MRT_XY = MRS_XY. C) MRS_X/P_X = MRS_Y/P_Y. D) MRTS_LK^X = MRTS_LK^Y.

Question

Quizplus · Accepted Answer

Efficient input use in the production of two goods X and Y using two inputs L and K occurs when the Marginal Rate of Technical Substitution (MRTS) between L and K for producing X is equal to the MRTS between L and K for producing Y. This ensures that inputs are allocated between the production of X and Y in such a way that the marginal product of inputs is equalized across both goods, maximizing efficiency.

In an Economy Which Produces Two Goods X and Y