Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: e’d expect we’d use less y and more x. But to make that claim, we have to be assured that the productivity of x would rise. If 0, it says that as we use more of y, at the margin, the productivity of x falls. Hence, of course, if we use less of y, the productivity rises. We can approach the problem of a change in the factor price of z in the same way. In this case, 0 0 1 Δ Δ 0, which is not surprising. In that In the separable case, case, the first‐order condition for factor z is: which does not depend on the other factors. Hence, the change in the price of factor z only impacts on the demand for factor z, no other factors. . i) Find the input elasticity ii) Find the cross elasticities and . Under what condition(s) will each be positive? What conditions will each be negative? If you get stuck, assume ,, ≡ , , where the functions , are concave (you may assume , , in the original problem is concave). ANSWERS: Problem B: Ms. A Preferences: 2 4 , Ms. A’s Endowment: 2 Ms. B Preferences: 12 , Ms. B’s Endowment: 1. Fi...
View Full Document

This document was uploaded on 02/07/2014.

Ask a homework question - tutors are online