A country has only two inputs K and L and produces two goods X & Y. It is endowed with 30 units of L and 15 units of K. Industry X is endowed with 25 units of L and 5 units of K and industry Y has the rest of L and K. This is an inefficient allocation.
A) Graph this endowment point as point 1, labeling the levels of L and K with L on the x - axis.
B) Label the total endowment of K and L on the graph.
C) Given the t this is a Pareto inefficient allocation, graph and label the isoquants.
D) Show the region that Pareto efficient exchange can lead to.
E) Show the largest increase in X that can result from an efficient exchange. Label this point 2.
F) Show the largest increase in Y that can result from an efficient exchange. Label this point 3
G) Show a Pareto efficient allocation that has an increase in X and Y. Label this point 4.