Page 344 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-22: Marginal Conditions of Paretian Optimum

Suppose that firm A produces OD quantity of object X and DC quantity of object Y and firm B produces Notes
OF quantity of X and FE quantity of Y. Both firms produce total quantity equal to OD + OF and DC +
FE of X and Y respective. Fig. 22.2 (B) keeps above 22.2 A show total quantity of X and Y in Fig. 22.3.
These quantities are GH and FD respectively. Because transfer curve TA and PB cut on point L each
others. So, the maximum rate of production is not equal. So, L is not the optimum point of condition
because both curves are not touch point each other. But if we lift the given figure little which is shown
by dash so its transferable curve P B touches TA on R So the slope of both curves meet each other.
1
1
1
This condition is accepted because maximum rate of transformation of both objects on point R is equal.
This is the condition of optimum degree of specialization because total quantity produces by them is X
KS > GH and MN > FD total amount of Y. It is not matter that R is the only optimum point of production
for both firms. Obviously, these can be many series of this condition of optimum where both transfer
curves can touch each other.

22.4 The Condition of Optimum Factor Product Utilization

In this condition, “between any factor and any object there should be equal transformation maximum
rate which uses that factor and produces that object.’ It means that for the production of a special object,
maximum rate of any factor for all firms should be equal. If maximum productivity of a factor is less to
produce an object, then some units of factors transferring to more producing firm would increase total
production. It has been clarified with the help of Fig. 22.4. Suppose that firm A has transferring curve if
OA and Firm B has transferring curve OB which has kept opposite on the transferring curve so that axes
are in parallel. Obviously, these are total producing curves and the slope has indicated the maximum
rate to change of a object of factor. Product (z) produced by two firms is taken on perpendicular axis and
their production is taken on horizontal axis. The point where both the transfering curve cut each other is
not the point of optimum condition. To get optimum condition push curve OB upper side, so the point
E touches OA curve. It is the point of optimum factor product utilization because OA and O B slope of
1
1
both transferring curves are equal and quantity of object increases from DC to KH.
Fig. 22.4

H
Y O
1 1
C
Y O
Product-Z B 1 E F A

B

O K DX
Factor-L

For two firms producing any two objects, the maximum rate of transformation is
equal.

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