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###### 1. 6 marks (Chapter 16.4 Efficiency in Input Allocation) Chip Labor Auto Capital Chip Captial Auto...

1. 6 marks (Chapter 16.4 Efficiency in Input Allocation) Chip Labor Auto Capital Chip Captial Auto Labor The Edgeworth Box diagram above refers to input usage in the automobile industry and the computer chip industry. The contract curve is given by 0A0C. All points on this curve correspond to input prices being equivalent across industries. For example, the line segment AC indicates the input price ratio at point B in the two industries. Also, line segment DF indicates the input price ratio at point E in the two industries. The diagram below presents the production possibilities frontier for automobiles and computer chips. Chips Autos The labeled points in the production possibilities frontier diagram correspond to the points A, B, E, and F in the Edgeworth Box diagram above. Which points in the production possibilities frontier diagram correspond to which points in the Edgeworth Box diagram? Why?

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