One firm is better at producing everything than another
Not what you're looking for?
Suppose there are two goods, video cassettes and record albums, produced by firm A and firm B. Suppose the marginal rate of product transformation (RPT) of record albums for video cassettes in firm B is 2(That is, firm B can always trade 2 video cassettes for 1 record album in production). On the other hand, the RPT in firm A is 1. Assume that each firm's RPT is constant over all possible output combinations.
If firm A produces 100 record albums and 100 video cassettes, how might firm A be made better off by shifting its output mix?
Purchase this Solution
Solution Summary
This is one of those questions that requires thinking outside the box. In the answer I show how two firms can improve their well being even though there is no information about the market and no information about the actual production of one of the firms.
Solution Preview
Initially, this appears to be an odd question because it gives us no information on the actions of B, only on the actions of A, and no information about the market (ie. price, demand, etc.). We also don't know how much each of ...
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.