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Please draw the diagrams. 1. Consider a country with Sy skilled workers and Uy unskilled workers. There are two final goods, indexed by 0 and
Please draw the diagrams.
1. Consider a country with Sy skilled workers and Uy unskilled workers. There are two final goods, indexed by 0 and 1, and the respective production functions are Fo(S,U) = min{S,U}, Fi(S,U)=S+U. Essentially, workers must work in a team of one skilled worker and one unskilled worker to produce good 0, and they can produce good 1 by themselves. Write p,, for the price of good w {0, 1} and write wg and wy, for skilled and unskilled wages. a. Suppose pg/p1 > 2. Set up a diagram with the unit-revenue curves for this economy and show the possible factor prices (ws, wy;) implied by this diagram, assuming that both goods are produced. b. In the context of a, determine output and factor prices when 0 Uy > 0. c. Suppose pg/p1 0 and Uy > 0. What do you know about factor prices in this case? d. Show the production possibility set for this economy and confirm the conclusions about output you reached in a, b and cStep by Step Solution
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