Suppose that people consume only two goods, cheese and bread. They consume these two goods in a

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Suppose that people consume only two goods, cheese and bread. They consume these two goods in a fixed ratio: One slice of bread is always eaten with one slice of cheese. Both cheese and bread are produced using only labor as an input. Their production functions are:

Yb = AbLb, Yc = AcLc, where Yb is the quantity of bread, Yc is the quantity of cheese, Lb is the amount of labor devoted to producing bread, and Lc is the amount of labor devoted to producing cheese.

The total quantity of labor in the economy, L, is constant, and Lb + Lc = L.

In the year 2000, Ab = Ac =

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Economic Growth

ISBN: 9780273769293

3rd Edition

Authors: David N Weil

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