Question
Suppose a country produces two goods, Baseballs and Corn. It takes labour and capital to produce baseballs, and labour and land to produce corn. The
Suppose a country produces two goods, Baseballs and Corn. It takes labour and capital to produce baseballs, and labour and land to produce corn. The total supply of labour in the country is 100 units, the supply of capital is 10 units and the supply of land is 15 units.
The production functions for baseballs and corn are given by the following equations:
QB = KLb-0.1Lb2 (1)
QC = T Lc -0.05Lc2 (2)
The marginal products of labour in baseball production and corn production are given by the equations:
MP Lb = 10 0.2Lb (3)
MP Lc = 15-0.1Lc (4)
a) If the price of Baseballs, relative to Corn, is 2 i.e. if PB /PC = 2, for autarky, determine:
i. The quantity of labour used in Baseball production
ii. The quantity of labour used in Corn production
iii. The equilibrium wage rate
iv. The quantity of Baseballs produced
v. The quantity of Corn produced
b) If the price of Baseballs, relative to Corn, increases to PB /PC = 4, find the new answers to the questions from 1a.
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