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Consider the following specific factors problem: Assume that there are only 2 industries: cars and machinery. Assume that there are 500 workers. Labor demand in
Consider the following specific factors problem: Assume that there are only 2 industries: cars and machinery. Assume that there are 500 workers. Labor demand in the car industry can be described as Lc=500-w and labor demand in the machinery industry can be defined by Lam=400-w. Assume labor is perfectly mobile between industries, but the single other factor, capital, is not mobile between industries (fixed). Assume that there is no unemployment. In this problem, what is the CHANGE in returns to capital in the car industry if the demand in the machinery industry increases to Lam = 500 - w? Make sure to include a negative sign when you enter your answer if you find that the returns to capital go down! If the returns increase, just put the number of the change
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