Assume that there are 3 industries. Each industry is located on an island and has no contact or awareness of the other 2 industries on their respective islands.

Industry 1 makes baseballs

Industry 2 makes hammers

Industry 3 makes machine tools

Here is the situation on each industry on its own island. The components of constant capital are entirely consumed during the production process in each industry.

The baseball industry

100 square yards of leather, 2,000 feet of thread, and 1000 labor-powers are combined to produce 10,000 baseballs.

The value of 1 square yard of leather is 10 hours of SNALT

The value of 1 foot of thread is 0.1 hour of SNALT

The value of one labor-power is 4 hours of SNALT

The length of the workday is 10 hours

The hammer industry

2 tons of steel, 1 ton of wood, and 500 labor-powers are combined to produce 1,000 hammers.

The value of a ton of steel is 2000 hours of SNALT

The value of a ton of wood is 300 hours of SNALT

The value of one labor-power is 4 hours of SNALT

The length of the workday is 10 hours

The machine tool industry

An assembly line, 10 punch machines, 5 tons of steel, and 10 labor-powers are combined to produce 500 machine tools.

The value of an assembly line is 100,000 hours of SNALT

The value of a punch machine is 50,000 hours of SNALT

The value of one ton of steel is 2000 hours of SNALT

The value of one labor-power is 4 hours of SNALT

The length of the workday is 10 hours

What is the rate of profit in each industry while they are separated from each other?

What is the price (labor-time based hours of SNALT) of each commodity in this separated environment?

What is the general rate of profit when all 3 industries are suddenly put together on the same island and there is the possibility of movement of money capital moving to a new investment opportunity?

What is the price (“price of production” based on hours of SNALT)of each commodity in this new environment?

Show your work here, explain why prices of production have changed from the original labor-time-based values, and fill in the answer sheet on the next page.

Answer sheet for Transformation Problem Exercise
Separate industries on separate islands
Rate of profit in each industry
Baseball	Hammer	Machine tools
All industries together with capital market competition
General Rate of Profit:
Rate of profit in each industry
Baseball	Hammer	Machine tools
Prices and Prices of Production
	Initial Price (separate islands)	Price of production (unified economy)
Baseball
Hammer
Machine tools