Abstract
Input-output (Leontief) production function is widely used in economic analysis. And diminishing marginal rate of return is a very well accepted economic fact. Leontief production function normally results in a linear production possibility frontier (PPF) due to its linear feature, whereas diminishing marginal rate of return implies a non-linear PPF. In this paper, the authors aim to fix this problem by considering multiple primary inputs in a simplified two-sector economy. The authors find that it is possible to curve a non-linear PPF by using Leontief production function when the authors add heterogeneous primary inputs. The authors also discuss the PPF using non-linear production function. Furthermore, the authors propose that three commonly used economic presumptions cannot hold in the same framework. These presumptions are “single primary input”, “fixed-proportion inputs” and “law of diminishing marginal returns”.
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Acknowledgements
The authors would like to thank Prof. Geoffrey J. D. Hewings, University of Illinois, Urbana, USA and Prof. Yang Cuihong, Chinese Academy of Sciences, for their useful comments. Of course, the authors are entirely responsible for all the remaining errors.
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This paper was supported by China Postdoctoral Science Foundation under Grant No. 2020M671504, the National Social Science Foundation of China under Grant No. 14AZD085, and the National Natural Science Foundation of China under Grant Nos. 71373106, 71903186.
This paper was recommended for publication by Editor YANG Cuihong.
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Jiang, W., Fan, J. & Tian, K. Input-Output Production Structure and Non-Linear Production Possibility Frontier. J Syst Sci Complex 34, 706–723 (2021). https://doi.org/10.1007/s11424-020-9079-y
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DOI: https://doi.org/10.1007/s11424-020-9079-y