Suppose a society’s PPF for food (F) and clothing (C) can be written a

Suppose a society’s PPF for food (F) and clothing (C) can be written as 25 = F2 + C2. If all consumers have the same endowment and the same utility function Ui = Fi ˆ— Ci, what is the efficient product mix of food and clothing?

What will be an ideal response?

ANSWER

The marginal rate of substitution of food for clothing (dF/dC) equals F/C. The marginal rate of transformation of food for clothing (dF/dC) equals C/F. The efficient product mix occurs when F/C = C/F, or C = F. Given the PPF, food and clothing will both equal sqrt(12.5).