If an Edgeworth production box for two industries,with land and labor as the inputs,has a contract curve that is same as the diagonal of the box,we can infer that:
A)land is being substituted for labor in production of both the commodities.
B)the production possibility frontier is a 45-degree line from the origin.
C)both industries are increasing cost industries.
D)the proportion of land to labor used in producing the two goods is the same.

Question

Quizplus · Accepted Answer

The contract curve being the same as the diagonal of the box implies that the optimal allocation of resources (land and labor) between the two industries is such that the proportion of land to labor used in producing the two goods is the same. This reflects an equal rate of substitution between land and labor across both industries, leading to a situation where the mix of inputs (land and labor) used in production is identical for both goods.

If an Edgeworth Production Box for Two Industries,with Land and Labor