ec340ch2 (2) - Wages Determination of wages In competitive...

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Wages Determination of wages In competitive markets firms hire workers up to the point at which the hourly wage equals the value of one more hour of production. The value of one more hour of labor equals the amount of goods produced in that hour (MPL) times the price of the good. Labor hired up to the point where wage equals P*MPL for each industry. The equalization of wages will give us the following: The right hand side is the slope of the PPF and the opportunity cost of obtaining one more bushel of wheat. The left hand side is the relative price of wheat. The price ratio, P W /P C , always denotes the relative price of the good in the numerator, measured in terms of how much of the good in the denominator must be given up. The slope of the PPF equals the relative price of wheat, the good on the horizontal axis. The Foreign Country Assume Foreign’s technology is inferior to Home’s. Foreign has an absolute disadvantage in producing both wheat and cloth as
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ec340ch2 (2) - Wages Determination of wages In competitive...

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