Alpha Geek
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The marginal product of labor curves corresponding to the production functions in problem 2 are as follows:
a. Suppose that the price of good 2 relative to that of good 1 is 2. Determine graphically the wage rate and the allocation of labor between the two sectors.
b. Using the graph drawn for problem 2, determine the output of each sector. Then confirm graphically that the slope of the production possibility frontier at that point equals the relative price. c. Suppose that the relative price of good 2 falls to 1.3. Repeat (a) and (b)
d. Calculate the effects of the price change from 2 to 1.3 on the income of the specific factors in sectors 1 and 2.
Problem 2
An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 units. Given the supply of capital, the outputs of the two goods depend on labor input as follows:
a. Graph the production functions for good 1 and good 2.
b. Graph the production possibility frontier. Why is it curved?
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