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Suppose there are two goods, video cassettes and record albums, produced by two firms (firm A and firm B). Moreover, 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? Explain your reasonings clearly.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M9271863

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