The Production Function for Buses - Edgeworth Box Assignment

The Production Function for Buses - Edgeworth Box - Assignment Example Our function will reproduce increasing returns to scale. This means that with an accumulation of production factors volume of produced goods will grow. To find a number of buses with every combination of production factors, it is necessary to substitute each number of employees and the number of machines for K and L indicators. Hence, if a number of machines are 14 and number of employees who make buses is 5, the calculation of production output will be the following: In accordance with above example, we can calculate all the rest level of production. (K=10, L=3): (K=8, L=1): etc. From the table, we can also see that in accordance with the accumulation of employees, the number of produced buses grows. Part (B) Make an ‘Edgeworth box’ diagram for the production of buses in Utropica: put the number of employees making buses on the horizontal axis (0 to 6), and a number of machines used to make buses on the vertical axis (0 to 16). Draw an isoquant line for 5 buses. On the same diagram, add an isoquant for 7 buses, and an isoquant for 10 buses. To draw an ‘Edgeworth box’ diagram for the production of a specific number of buses, it is required to find all combinations of factors that are able to create the stated level of production. Hence, using a table above, it can be seen that 5 buses can be produced by 10 machines and 1 employee or 8 machines and 2 employees. So there are several alternatives for this output. Consequently, finding all possible combinations, we receive points that will form the isoquant line on the diagram. Using the same method, we find combinations of the factors for producing 7 buses.