1. Here, we describe One reason for why the transfer of resources across rms is important. Assume that there are two producers in the economy. The rst producer has access to the following production technology, 2 was where K1 is the amount of capital stock that this producer has and Y1 is the amount of output produced. Analogously, the second producer is able to produce output using the following production function: K3 (a) Suppose that each producer has access to one unit of capital. How much will be produced in this economy? What is the marginal product of capital for each producer in this case? (b) Suppose that we wanted to allocate capital to maximise output. As in part a), assume that there is a total of 2 units of capital available. How much capital should the rst and second producer have access to? What is the marginal product of capital for each producer? (c) Suppose there is a market at which producers can trade capital. What is the interest rate that would ensure an Optimal allocation of capital