microromer - TWO SECTOR ECONOMY: PRODUCTION SIDE (1) Case...

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q M L M q F L F TWO SECTOR ECONOMY: PRODUCTION SIDE (1) Case of one input : L (Labor) - Assume 2 produced goods: M & F - Fixed amount of labor: L (Needs to be allocated to the 2 sectors) - Firms maximize profits taking prices (P & P ) and wages (w) as given. MF (i.e. we have perfect competition in output and input markets) Assume that the production functions have decreasing Marginal Product of Labor (MPL) Example: If both sectors produce positive amounts of output, profit maximization will require:
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This note was uploaded on 08/08/2008 for the course ECON 365 taught by Professor Muniagurria during the Spring '07 term at Wisconsin.

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microromer - TWO SECTOR ECONOMY: PRODUCTION SIDE (1) Case...

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