Question
Why is gravel made by hand in Nepal but by machine in the US? Assume the gravel production function is q=2LK where q is the
Why is gravel made by hand in Nepal but by machine in the US?
Assume the gravel production function is q=2LK where q is the quantity of gravel, K is the number of capital hours, and L is labor hours employed.
a. In Nepal, wage, Wn=2 and the rental rate of capital, r=4. What is the optimal quantity of labor and capital for producing 1,000 units of gravel? What is the cost?
b. In the US, wage is higher, Wu= 4. Since construction equipment is traded in world markets, the rental rate of capital is the same in the two countries. What is the optimal quantity of labor and capital for producing 1,000 units of gravel? What is the cost? Draw a (generic) isoquant-isocost lines diagram showing the situation in Nepal and the US
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