La = labour in agriculture

Li = labour in industry

Lu = labour in urban underemployed

Ltot = total labour in the economy

wa = wage rate in agriculture

wi = wage rate in industry

MPLa = value of marginal product of labour in agriculture

MPLi = value of marginal product of labour in industry

m = subsistence wage

i = fixed minimum wage in industry

Pi = Pa = 1. (price of industrial output, price of agricultural output)

Question 1. Assume the situation as depicted in the Harris Todero model and workers move from rural to urban areas until the expected return from living in the city equals the agricultural wage wa.

Assume: VMPLi = 110 - 2Li; VMPa = 60 - 025 La; There a minimum wage that must be paid to industrial workers of i = 50. The urban under-employed receive wu=30. There is a lottery for urban jobs, the probability of getting an urban job is Li / (Li + Lu), while the probability of getting an urban underemployed job is 1 - Li / (Li+Lu). Ltot= 100 = Li + La + Lu. We see that in equilibrium, we get Li*=30, Lu*=10, La*=60, wa*=45. Now assume that an investment in rural road infrastructure occurs that shifts MPLa to MPLa = 65 - 0.25 La, while everything else stays the same. How many workers will be employed in industry, how many workers will be urban under-employed? How many workers will be in agriculture? What will be the agricultural wage?

please draw graph to explain calculations

Question 2. Use the results from above to explain implications of each model for the optimal investment in agriculture and / or industry. 1. the Lewis dual sector,

2. no distortions dual sector

3. Harris-Todero migration model

please use graphs for detailed explanations