Page 347 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes These all conditions can be collected as a whole theory as:’ the maximum rate of substitution between
any two objects and factors is equal to their maximum rate of transformed and ratio of their price must
be equal with each other.

Self Assessment

State whether the following statements are True/False:
9. Maximum rate of transformation is that rate of which object will be quit.
10. Optimum condition comes of that time, when a factor – owner paid price is equal to maximum rate
of producing of a factor.
11. Concavity income on neutral curve and decreasing indicates maximum rate of substitution of holiday.
12. Convex transformation curve and concave neutral will indicate economic minimum.
Its Criticisms: These marginal or first order conditions are essential for maximum welfare, but
maximum welfare is not sufficient instead it can take to minimum condition in reality. Convex
transformation curve and concave neutral curve will express economic minimum. So, for getting
st
maximum welfare it is necessary to fulfill the condition of 1 type with the condition of second
type. It is necessary for second type condition that all neutral curve main point should concave and
all transformation curve main point should concave. But it cannot be necessary to get maximum
condition. According to Prof. Bolding, “there is nothing in marginal condition which differentiates
between simple mountain and Everest.” So, total welfare condition of Hicks should fulfill. If
we use the Bolding statement, it measure moments. It is necessary for total condition that “if
welfare is to be maximum, it should impossible whose production is not done. By production of
that object and whose uses are not done eluting, it should increase welfare by using that factor”.
Dr. Mishan is accepts these total condition as a true sufficient condition. Which if agree with
maximum and second type condition then it can take to maximum of welfare. But maximum, it can
be one optimum condition. Therefore in all conditions price fixation is remaining while optimum
maximum condition of Pareto excludes price decision. Obviously, maximum condition is also not
free from price decision. Each point on the contract curve fig. 22.1 Pareto optimal choice reflects
the value judgments of them are present.

All marginal conditions satisfy in perfect competition. But in fact, these necessities are never fulfills in
perfect competition because oligopoly, duopoly and monopolistic competition are found in real world.
But the optimum level of Pareto can never found in monopolistic competition because the substitution
rate for various consumers will never equal; the MRS will not equal to MRT for different products and
factors as well as their ratio of price will never equal. To not satisfy the MRS, the main reason is the
prices are always high from its marginal cost in monopoly condition, P > MC = MR by which the factors
distributed faulty.
The socialist solution: Since under monopoly competition optimum condition of Pareto does not
agree, so it enchased this statement that each Pareto optimum distribution is perfect competition
and each candidate equilibrium is Pareto optimum. But Dr. Mishan clarifies that is not necessary or
essential condition for obtaining optimum conditions. So the economist like Lang and Lerner have
proved that under socialist for getting optimum condition, it is possible to supply prompt supply
of resources. If ownership is removed in capitalizes that like capitalism, the condition of socialism
can be constructed. In socialist economy planning power take the place of capitalism market and
equalize the demand and supply by mixing the price of object and scripting. But distributor wishful
to resources by trial and error the price of accounts can be established. Then by ratio of giving
instructing to apply maximum law, optimum production and optimum factor can be receiving.
When once this is obtained the efficiency of distribution then optimum condition of welfare is
totally agree.

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