A point off the contract curve in an Edgeworth production box means that:
A)the costs are being minimized.
B)the output is being maximized.
C)the economy is not operating on the production possibility frontier.
D)the firms must be facing the same ratio of input prices.

Question

Quizplus · Accepted Answer

The contract curve in an Edgeworth production box represents the efficient allocation of resources between two firms. Any point off the contract curve means that the production levels and input usage are not being efficiently allocated, i.e., the economy is not operating on the production possibility frontier. This could be due to several reasons, such as market imperfections or externalities. Thus, option C is the correct answer. Options A, B, and D do not capture the essence of the issue captured in the question.

A Point Off the Contract Curve in an Edgeworth Production