A box of Legos consists of complex bricks and basic bricks. The production function of Lego boxes is assumed to be:
Y = (B1^(2/3))*(B2^(1/3))
While boxes of Legos are assembled in Denmark, the production of some of the bricks can be offshore to Hungary.
Producing one complex brick requires one skilled worker (Danish or Hungarian). Producing one basic brick requires two unskilled workers (Danish or Hungarian). However, bricks melt on the way from Hungary to Denmark, and one needs to produce three bricks in order to receive one brick in Denmark (2 out of 3 bricks melt during transportation). This applies to any type of brick, they both melt in the same proportions.
A. In equilibrium, why is the skill premium the same in Hungary as in Denmark?
B. Depending on the skill premium (unknown variable to be determined later), what is the price (=unit cost) of complex bricks relative to basic bricks?