Question
The marginal product of labor curves corresponding to the production functions are as follows: workers employed MPL in leather MPL in wheat 5 5.4 3.96
The marginal product of labor curves corresponding to the production functions are as follows: workers employed MPL in leather MPL in wheat 5 5.4 3.96 10 2.3 2.28 15 1.76 2.22 20 1.74 1.96 25 1.94 1.7 30 1.76 1.68 35 1.58 1.68 40 1.16 1.6 45 1.18 1.54 50 1.18 1.38 a. Suppose the price of wheat relative to that of leather is 1.43. Determine graphically the wage rate and the allocation of labor between the two sectors. b. Suppose the relative price of wheat rises to 3.5. Repeat (a). c. Calculate the effects of the price change from 1.43 to 3.5 on the income of the specific factors in leather and wheat.
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