ANSWERS EXTRA PROBLEM FOR HOMEWORK SET 3

Wecanapproachtheproblemofachangeinthefactorprice

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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...
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This document was uploaded on 02/07/2014.

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