Exam 2 Solutions

Exam 2 Solutions - ECON 452 Solution Exam II 1.- A 2.- C...

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ECON 452 Solution Exam II 1.- A 4.- B 7.- B 10.- C 2.- C 5.- B 8.- B 3.- C 6.- E 9.- D 11.- The information provided is: T = 240 a tf = 8 a lf = 6 L = 400 a tmb = 4 a lmb = 10 a) To find which is the factor of production that is used intensively in the production of mountain bikes, we need to solve the relationship 75 . 0 8 6 4 10 5 . 2 = = > = = tf lf tmb lmb a a a a so we know that the production of mountain bikes is labor-intensive (and the production of sets of furniture is land-intensive. If the U.S. would open up to trade with Brazil (who has L * = 300 and T * = 3000), then we know that the U.S. is relatively labor abundant (and Brazil relatively land abundant) 1 . 0 10 1 3000 300 240 400 67 . 1 * * = = = > = = T L T L so we know that the U.S. has the comparative advantage in the production of mountain bikes, the good that makes relative intensive use of the relative abundant factor of production. The pattern of trade shows the U.S. exporting mountain bikes and importing sets of furniture. b) Original (with L = 400 and T = 240) 60 30 8 4 8 240 int _ = = = = = + mb f mb f mb tf tmb tf f f tf mb tmb Q Q Q Q Q a a a T Q T Q a Q a Constra Land 40 ~ 7 . 66 ~ 6 10 6 400 int _ = = = = = + mb f mb f mb lf lmb lf f f lf mb lmb Q Q Q Q Q a a a L Q L Q a Q a Constra Labor so the amount of mountain bikes and sets of furniture produced can be found by setting both equations (constraints) equal and solving for the two unknowns
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3 . 14 4 . 31 * 5 . 0 30 4 . 31 17 . 1 7 . 36 67 . 1 7 . 66 5 . 0 30 = = = = = f mb mb mb Q Q Q Q The immigration to the new planet decreases the amount of labor to L = 300, so the only constraint that needs to be upgraded is the labor constraint. 30
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Exam 2 Solutions - ECON 452 Solution Exam II 1.- A 2.- C...

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