Q 2. (Total Marks = 50)

In the diagram below, the production function shown corresponds to Jim and Miller combined.

1. Assuming a scenario where Jim works on the land owned by Miller, use the diagram above to explain how do Jims preferences rank the allocation possibilities marked as A, B, C and D? (Marks = 5)

2. Suppose the case where Jim is a slave to Miller. Miller finds out that Jims immune system is severely compromised ever since he recovered from a fatal illness and thus requires more nutrition in exchange for more hours of work just to be able to survive. Draw an altered diagram to part (a) to depict how would Jims biological survival constraint change in this case? Will he be better off at this new survival constraint as compared to his old one? (Make sure your diagram is fully labelled). (Marks = 15)

3. Now suppose the Government introduces a new social welfare program, wherein the reservation wage increases from 2 bushels of grain to 5 bushels of grain. Who do you think would benefit from this program? Draw a new diagram to show the impact of this welfare program. (Make sure your diagram is fully labelled). (Marks = 15)

4. With regards to your drawing above, is this allocation a pareto efficient one? Explain your reasoning. (Marks = 5)

5. On a single well-labelled diagram, show how the allocation would change when Jim is a slave and when Jim is a tenant on Millers land. Briefly explain your reasons for the contrast that you depicted on the diagram and without using any numbers/digits, in your own words, explain whether and how the pareto efficient outcome be different in these two cases? (Marks = 10)

Bushels of Grain D B A (slope at B = slope at C] Hours of Leisure Bushels of Grain D B A (slope at B = slope at C] Hours of Leisure