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The marginal product of labor curves corresponding to the production functions i1 problem 1 are as follows: Workers employed MPL in Sector 1 MPL in
The marginal product of labor curves corresponding to the production functions i1 problem 1 are as follows: Workers employed MPL in Sector 1 MPL in Sector 2 10 4.74 4.64 20 3.35 2.92 30 2.74 2.23 40 2.37 1.84 50 2.12 1.59 60 1.94 1.41 70 1.79 1.27 80 1.68 1.16 90 1.58 1.07 100 1.50 1.00 a. (5 points) Suppose the price of good 2 relative to that of good 1 is 3. Determine graphically the wage rate and the allocation of labor between the two sectors. For your answer, normalize the price of good 1 to be 1, then use the relative price to back out the price of good 2. (5 points) Using the graph drawn for problem 1, determine the output of each sector. Then confirm graphically that the slope of the production possibility frontier at that point equals the relative price. (5 points) Suppose the relative price of good 2 falls to 1.5. Discuss the effects of this Drice change on the income of the specific factors in sectors 1 and 2
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