Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. Angela and Bruno’s feasible frontier is downward sloping and concave, while Angela’s biological survival constraint is downward sloping and convex (as shown in the figure). If Bruno has all the bargaining power, which of the following statements is correct?

Question

Answer

When the MRT of work hours into grain output is lower than the MRS of work hours into subsistence requirements, then Angela’s allocation of grain should be increased.

Answer

When the MRT of work hours into grain output is greater than the MRS of work hours into subsistence requirements, then Bruno should decrease Angela’s free time.

Answer

The marginal rate of transformation (MRT) of work hours into grain output is the slope of Angela’s biological survival constraint, while the marginal rate of substitution (MRS) of work hours into subsistence requirements is the slope of the feasible frontier.

Answer

Angela’s most preferred option is where the MRT equates her MRS.

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Bruno is a landowner and Angela is a farmer who pays a share of her grain output...

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