Microeconomics 2nd Edition by Douglas Bernheim

Exercise 8

The output efficiency condition applies both when firms produce different products (like food and housing), and when they produce the same product. For example, suppose firms A and B both produce apples, and that A's apples are perfect substitutes for B's. In that case, the output efficiency condition simply tells us to allocate inputs between firms A and B so as to maximize total apple production. Explain why. (Your answer should explain why that conclusion follows from the equivalence between marginal rates of substitution and transformation for the products of firms A and B).