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Unformatted text preview: Econ 181 - DIS 103/4, Spring 2010 February 10, 2010 Specific Factors Model Consider the specific factors model with two sectors (goods): manufactures (M) and food (F); one perfectly mobile 1 production factor: labor (L); two fixed production factors: capital (K) in the manufactures sector and land (T) in the food sector. Production functions are given by Q M = K . 5 L . 5 M and Q F = T . 5 L . 5 F , and L = L M + L F . 1. (a) Derive the production possibility frontier for this economy (that is, express Q F as a function of Q M and the resources available: K,T,L ). (b) Given output prices, show graphically how the equilibrium wage rate and the allocation of labor between the two sectors is determined. (c) Using the production functions, show mathematically how the supply curve for each good is determined (as a function of output prices). Also, discuss how the equilibrium wage rate and the returns to land and capital are determined....
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This note was uploaded on 05/13/2010 for the course ECON 181 taught by Professor Lee during the Spring '10 term at UCLA.
- Spring '10