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Question 1 The marginal product of labour curves corresponding to the production are as follows: (a) Suppose the price ofwheat relative to that of leather is 5. Determine graphically the wage rate and the allocation of labour between the two sectors. (b) Using the graph drawn for problem 2, determine the output of each sector. Then conrm graphically that the slope of the production possibility frontier at that point equals relative price. MPL = Marginal Labor Product Workers employed MPL sector 1 leather MPL sector 2 wheat _ _ _ _ _ _ _ _ M PL1/P1=MPL2/P2 (c) Suppose the relative price of wheat rises to 8. Repeat (a) and (b). (d) Calculate the effects of the price change from 5 to 8 on the income of the specific factors in sectors 1 and 2

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