Suppose that in the Pareto set of the 2 × 2 production model ...

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Suppose that in the Pareto set of the 2 × 2 production model does not coincide with the diagonal of the Edgeworth box.

(a) Show that in this case, the factor intensity (the ratio of a firm’s use of one factor to the second factor) of one of the firms exceeds that of the other at every point along the Pareto set.

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An economic outcome is Pareto optimal (or Pareto efficient (PE)) if there is no alternative feasible outcome that makes every individual in the economy at least as well off and some individual strictly better off. The equilibrium analysis is the Edgeworth Box used to analyze the trading of goods. Essentially, it merges the indifference map between the parties in the trade by inverting one of the agents diagram.
Factor intensity (use of factor 1 relative to factor 2 in production) of one firm exceeds the one of the...

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