ProblemSet6Solutions

# ProblemSet6Solutions - Economics 310 Microeconomic Theory:...

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Approach Fall 2007 Solutions to Problem Set 6 Due in class on December 4th. Question 1 x = min( k x ; l x ) units of good x y = p k y l y units of good y . This country has 10 units of capital and 25 units of labor. (a) Describe the production possibility frontier of this country. For a ±xed x , we and ±nd the maximum amount of y ( as a function of x ) that can be produced with the countries resources. Due to the nature of Firm 1²s production function, the amount of capital and labor used to produce x is k x = x and l x = x respectively. The resources that remain for the production of y are k x = 10 x and l x = 25 x: Therefore the production possibility frontier is: y ( as a function of x ) that can be produced is y = p (10 x )(25 x ) : (b) Compute the rate of production transformation. Rate of production transformation (RPT) = dy dx = ((10 x )(25 x )) 1 2 2 : (2 x 35) = 35 2 x 2 p (10 x )(25 x ) : Suppose that outputs x and y are traded internationally at price 5 and at price 4 markets at price v and labor at price w . (c)

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## This homework help was uploaded on 04/07/2008 for the course ECO 310 taught by Professor Stephene.morris during the Fall '08 term at Princeton.

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ProblemSet6Solutions - Economics 310 Microeconomic Theory:...

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