increase because inputs are generally less costly.If the firm is a monopolist in the output market ouput will be such that price is above marginal cos and output will elearly be less.With monopsony toomuch may be produced;with monopoly,too little is produced. The incentive to produce too little could be less than.equal to.or greater than the incentive to produce too much.Only in a special configuration of marginal expenditure and marginal revenue would the two incentives be equal. 9.The Acme Corporation produces x and y units of goods Alpha and Beta respectively. Use a production possibility frontier to explain how the willingness to produce more or less Alpha depends on the marginal rate of transformation of Alpha or Beta. The production-possibilities frontier shows all efficient combinations of Alpha and Beta.The marginal rate of transformation of Alpha for Beta is thes of theprduction-bfronter.The th margina ucing one good relative to the marginal cost of producing the other.To increase x,the units of Alpha,Acme must release inputs in the production of Beta and redirect them to producing Alpha. The rate at which it can efficiently substitute away from Beta to Alpha is given by the marginal rate of transformation of Alpha initially,or (ii)Ac me pr units zero unit of Bet Acme always tries to stay on its production-possibility frontier,describ the initial positions of cases (i)and (ii).What happens as the Acme Corporation begins to produce both goods? The two extremes are corner solutions to the pmoblem of determining efficient output.given market prices.These two solutions are both possible with differe tangencies with Acme's en of the frontier Assuming that the price ratio changes so the firm woul find it efficient to produce both goods and,assuming the usual concave shape of the frontier,it is likely that the firm will be able to decrease the production of its primary output by a small amount for a larger gain in the output of the other good.The firm should continue toshift production until the ratio of marginal costs (ie.the MRT)is equal to the ratio of market prices for the two outputs 10.In the context of our analysis of the Edgeworth production box,suppose a new invention causes a constant-returns-to-scale production process for food to become a sharply-increasing-returns process.How does this change affect the production-contract curve? increase because inputs are generally less costly. If the firm is a monopolist in the output market, output will be such that price is above marginal cost and output will clearly be less. With monopsony, too much may be produced; with monopoly, too little is produced. The incentive to produce too little could be less than, equal to, or greater than the incentive to produce too much. Only in a special configuration of marginal expenditure and marginal revenue would the two incentives be equal. 9. The Acme Corporation produces x and y units of goods Alpha and Beta, respectively. a. Use a production possibility frontier to explain how the willingness to produce more or less Alpha depends on the marginal rate of transformation of Alpha or Beta. The production-possibilities frontier shows all efficient combinations of Alpha and Beta. The marginal rate of transformation of Alpha for Beta is the slope of the production-possibilities frontier. The slope measures the marginal cost of producing one good relative to the marginal cost of producing the other. To increase x, the units of Alpha, Acme must release inputs in the production of Beta and redirect them to producing Alpha. The rate at which it can efficiently substitute away from Beta to Alpha is given by the marginal rate of transformation. b. Consider two cases of production extremes: (i) Acme produces zero units of Alpha initially, or (ii) Acme produces zero units of Beta initially. If Acme always tries to stay on its production-possibility frontier, describe the initial positions of cases (i) and (ii). What happens as the Acme Corporation begins to produce both goods? The two extremes are corner solutions to the problem of determining efficient output, given market prices. These two solutions are both possible with different price ratios, which could produce tangencies with Acme’s end of the frontier. Assuming that the price ratio changes so the firm would find it efficient to produce both goods and, assuming the usual concave shape of the frontier, it is likely that the firm will be able to decrease the production of its primary output by a small amount for a larger gain in the output of the other good. The firm should continue to shift production until the ratio of marginal costs (i.e., the MRT) is equal to the ratio of market prices for the two outputs. 10. In the context of our analysis of the Edgeworth production box, suppose a new invention causes a constant-returns-to-scale production process for food to become a sharply-increasing-returns process. How does this change affect the production-contract curve?