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ps5a_114

# ps5a_114 - Econ 114 Javier Birchenall Due date Tuesday...

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Econ 114 Javier Birchenall Due date: Tuesday, November 16, 2010 Problem set 5: Misallocations and capital f ows The following problem set(s) are based on Chapter 10 in the textbook and Lucas’s discussion about capital f ows. Plan to spend 6 hours (maybe more) on these questions. Please return the problem set on time (next Tuesday during class), remember you have the chance to miss one and only one, use it wisely. If you have any problems regarding the questions please contact me immediately by e-mail: .G o od luck! I. Labor misallocation and e ciency (60%) Consider a country in which there are two sectors, called Sector and Sector . The production function of the two sectors are: =( ) ,and =( ) with 0 1 and with as the number of workers employed in Sector and the number of workers employed in Sector . The total number of workers in the economy is 1= + .( 1 ) The only di f erence between the sectors is that in Sector workers are paid their marginal product,   , whereas in sector

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ps5a_114 - Econ 114 Javier Birchenall Due date Tuesday...

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