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 depend on labor input as follows: The marginal product of labor curves corresponding to the production functions (not given in the problem) are as follows: 1. Suppose that the price of good 2 relative to that of good 1 is 2. For simplicity, define P1 = 1 and P2 = 2. Given that the total labor allocated between these sectors must 1 sum to 100, draw the demand curve for labor in sector 1 by plotting all eight points corresponding to 10 workers employed up to 90 workers employed. Properly label this curve. 2. Draw the demand curve for labor in sector 2 by plotting all eight points corresponding to 10 workers employed up to 90 workers employed. Properly label this curve. 3. Determine graphically the wage rate and the allocation of labor between the two sectors. 4. Using the graph drawn for problem 2, determine the output of each sector. 5. Suppose the relative price of good 2 falls to 1.3. Repeat (2), (3) and (4). 6. What are the effects of the price change from 2 to 1.3 on the income of specific factors in sectors 1 and 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 depend on labor input as follows: Labor Input Output Labor Input Output to Good 1 of Good 1 to Good 2 of Good 2 0 0.0 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 60 73.6 60 81.5 70 80.7 70 86.7 80 87.4 80 91.4 90 93.9 90 95.9 100 100 100 100 The marginal product of labor curves corresponding to the production functions (not given in the problem) are as follows: Workers MPL in MPL in Employed Sector 1 Sector 2 10 1.51 1.59 20 1.14 1.05 30 1.0 82 40 .87 69 50 .78 60 60 .74 54 70 .69 .50 80 .66 46 90 .63 43 100 60 40 1. Suppose that the price of good 2 relative to that of good 1 is 2. For simplicity, define Pi = 1 and P2 = 2. Given that the total labor allocated between these sectors mustsum to 100, draw the demand curve for labor in sector 1 by plotting all eight points corresponding to 10 workers employed up to 90 workers employed. Properly label this curve. 2. Draw the demand curve for labor in sector 2 by plotting all eight points corresponding to 10 workers employed up to 90 workers employed. Properly label this curve. 3. Determine graphically the wage rate and the allocation of labor between the two sec- tors. 4. Using the graph drawn for problem 2, determine the output of each sector. 5. Suppose the relative price of good 2 falls to 1.3. Repeat (2), (3) and (4). 6. What are the effects of the price change from 2 to 1.3 on the income of specific factors in sectors 1 and 2