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- Title
On the Shape and Location of the Production Possibility Curve.
- Authors
Krauss, Melvyn B.; Johnson, Harr G.; Skouras, Thanos
- Abstract
This article comments on the paper On the Derivation of the Production Possibility Curve by James R. Melvin in a 1971 issue of the journal Economica. It will focus on Melvin's analysis of the of the difference between optimal factor utilization ratios between the two goods increases. For starters, Melvin's analysis of an increase in the difference between factor utilization ratios of the two goods and its effect on the shape and location of the transformation curve around fixed endpoints suffers from the same defect displayed by his analysis of changing the elasticity of technical substitution (ETS), namely, that his result depends both on the change he postulates and an implicit increase in the factor endowment. However, the investigation of the production possibility effect of increasing the difference between factor utilization ratios alone is simpler than the investigation of a change in the ETS, for unlike the latter there is no need for a reference factor utilization ratio, independent of factor prices and optimal factor utilization ratios, at which the change is to be taken. At any of the equilibrium factor prices ranging from complete specialization on one good to complete specialization on the other, the change simply is gauged with respect to the original optimal capital-labor ratio obtaining at that price ratio. There is, in other words, only one analytical outcome and not a set of possibilities for the production possibility curve when the degree of difference between factor intensities is the postulated parametric change.
- Subjects
PRODUCTION possibility curve; CURVES; CONSUMER goods; PRODUCTION (Economic theory); MELVIN, James R.
- Publication
Economica, 1973, Vol 40, Issue 159, p305
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2552801