10. (5) Suppose a society is in general equilibrium of production and exchange, with households providing labor and capital to the productive sector, which produces the goods Xylophones (X) and Yaks (Y). Consumption and production Edgeworth boxes are provided on the next page, with equilibrium outcomes shown by tangencies. We start on the contract curves in both cases. Assume that Land Kare "normal" inputs for both xylophones and yaks; for example, greater yak production would mean more L and more K would be used for a given production technology. You can assume that both are produced with decreasing returns-to-scale Cobb-Douglas technology. This just keep things simple. (a) Based on the diagrams, which product was relatively labor intensive? Which household was relatively fond of xylophones? Explain each answer briefly. (b) I drew in a ppf. There is something wrong with how I drew it: this is a little subtle, but it is quite important. What is it? (c) Suppose management screws up and uses Land K at the point indicated by the intersection of the two isoquants in the production Edgeworth box, point S. Describe roughly where the corresponding consumption point would be in the lower diagram, and explain how this screw-up affects the quantities available for consumption. Production Oy K S Exchange ppf Os Y OA 10. (5) Suppose a society is in general equilibrium of production and exchange, with households providing labor and capital to the productive sector, which produces the goods Xylophones (X) and Yaks (Y). Consumption and production Edgeworth boxes are provided on the next page, with equilibrium outcomes shown by tangencies. We start on the contract curves in both cases. Assume that Land Kare "normal" inputs for both xylophones and yaks; for example, greater yak production would mean more L and more K would be used for a given production technology. You can assume that both are produced with decreasing returns-to-scale Cobb-Douglas technology. This just keep things simple. (a) Based on the diagrams, which product was relatively labor intensive? Which household was relatively fond of xylophones? Explain each answer briefly. (b) I drew in a ppf. There is something wrong with how I drew it: this is a little subtle, but it is quite important. What is it? (c) Suppose management screws up and uses Land K at the point indicated by the intersection of the two isoquants in the production Edgeworth box, point S. Describe roughly where the corresponding consumption point would be in the lower diagram, and explain how this screw-up affects the quantities available for consumption. Production Oy K S Exchange ppf Os Y OA