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Econ_181_HW2_S13_solution

# mpl 15l 15 l 2l 8l 4 mpl

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Unformatted text preview: ndicate on the graph how much each country can produce if it uses all its available labor in production of C or F. Answer: Home: Q ! = 3 ∗ 5 ∗ 10 = 150 Q ! = 2 ∗ 4 ∗ 10 = 80 Foreign: Q∗ = 3 ∗ 4 ∗ 10 = 120 ! Q∗ = 2 ∗ 5 ∗ 10 = 100 ! Q ! Foreign 150 120 Home 80 100 Q ! d) Derive the marginal product of labor in each sector (MPL! , MPL! ) of Home country. Answer: !/! MPL! = ∂(15L! ) 15 = ! ∂L! 2L! ! !/! ∂(8L! ) 4 MPL! = = ! ∂L! L! ! e) Now suppose the autarky prices in Home country are \$15 for one unit of clothing and \$4 for one unit of food. Solve for the equilibrium wage and labor allocation between two sectors. Answer: w = MPL! ∗ P! = MPL! ∗ P! 15 4 ! ∗ 4 = ! ∗ 15 2L! L! ! ! ! L! ! ! L! ! We have L! = 80 and L! = 20. Wage = = 2 4 20 ∗ 15 = 3 5 f) Suppose that as the result of a natural disaster (e.g. an earthquake) that the amount of capital decreases by 50 percent. For Home country, draw how the demand for labor, the equilibrium wages and the equilibrium labor allocations change as a result of this disaster. Answer: PcMPLc Lc PcMPLc M PcMPLc Lc after Lc before PcMPLc g) Nowgain, the impact on the real wage is ambiguous. The real wage in terms of the import good (now food) rises in Foreign but the real wage in terms of the export good (clothing for Foreign) falls. 2. True or False (explain briefly): a) Belgium is a small open economy producing a manufactured good and an agricultural good. Land is specific to agriculture, while capital is specific to manufacturing, and worke...
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