3) a Suppose that the price of good 2 relative to that of good 1 is 2. Determine graphically the wage and allocation of labor between the two sectors.

You do not have to include the graph in your answers, but please report the amount of labor allocated for Good 1 and labor allocated for Good 2.Also report the equilibrium wage.

Labor Good 1_______________________

Labor Good 2 _________________________

Equilibrium wage_______________________

3) b Using the graph drawn for problem 2, determine the output of each sector. Then confirm graphically that the slope of the production possibility frontier at that point equals the relative price.

Given the labor allocation you found in (a) report the total outputs:

Output Good 1_______________________Output Good 2 _______________________

Confirm that the (negative) relative MPL at this combination are equal to the (negative) relative prices.

CHAPTER 3 Specific Factors and Income Distribution 61 2. An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 units. Given the supply of capital, the outputs of the two goods depends on labor input as follows: Labor Input to Good 1 Output of Good 1 Labor Input to Good 2 Output of Good 2 0.0 0.0 10 25.1 10 39.8 20 38.1 20 52.5 30 48.6 30 61.8 40 57.7 40 69.3 50 66.0 50 75.8 73.6 60 81.5 80.7 70 86.7 87.4 80 91.4 90 93.9 90 95.9 100 100 100 100 a. Graph the production functions for good 1 and good 2. b. Graph the production possibility frontier. Why is it curved