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Explain/show why if all firms face the same prices for all inputs, then there is Pareto...

Explain/show why if all firms face the same prices for all inputs, then there is Pareto efficiency in production.

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Answer #1

Pareto efficiency is that state in the economy where the circumstances of one person cannot be made better off without making another person worse off.

According to the given situation, if all firms face same amount of prices of input, that means all the firms are at same level. The resources are optimally used by all the firms. So situation of one firm can be made better off only by making the situation of some other firm worse off. Thus this is situation of Pareto optimality in production.

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