Question
Consider a country that produces computers (C) and food (F) using capital (K) and labor (L). Both industries are perfectly competitive. The factors of
Consider a country that produces computers (C) and food (F) using capital (K) and labor (L). Both industries are perfectly competitive. The factors of production are complements. As a result, unit factor requirements are fixed and given by: aKc =3,aKF = 1, 0LC = 2 and aLF = 4. Suppose that this economy has 100 units of capital and 150 workers. (c) Suppose that the world price of computers is $16 and the world price of food is $12. Assume that the Home country produces both goods. What are the free trade factor price levels W and R? (d) How many computers and units of food will the economy produce? (e) Suppose that the endowment of labor increased to 200. Compute the new equilibrium wage, rental rates and quantities produced in the new equilibrium. Provide the intuition of your results.
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Microeconomics
Authors: Christopher T.S. Ragan, Richard G Lipsey
14th canadian Edition
321866347, 978-0321866349
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