A small open economy produces two goods, 1 and 2, at output levels y;, i = 1, 2. Output prices are set on world markets and denoted p1, P2. The economy is endowed with quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used in both sectors, L; denoting the use of labour in sector i = 1, 2. The wage rate and the capital rental rate are w and r, respectively. The production function for good 1 is Y1 = L1, and good 2 has production function y2 = VKL2. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? a. L1 = L - ()² K , L2 = ( *K. O b. L1 = ()K, L2 = L – () K. 2p1 2p2 2p2 O c. L1 = 0, L2 = L. O d. L1 = L, L2 = 0.
A small open economy produces two goods, 1 and 2, at output levels y;, i = 1, 2. Output prices are set on world markets and denoted p1, P2. The economy is endowed with quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used in both sectors, L; denoting the use of labour in sector i = 1, 2. The wage rate and the capital rental rate are w and r, respectively. The production function for good 1 is Y1 = L1, and good 2 has production function y2 = VKL2. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? a. L1 = L - ()² K , L2 = ( *K. O b. L1 = ()K, L2 = L – () K. 2p1 2p2 2p2 O c. L1 = 0, L2 = L. O d. L1 = L, L2 = 0.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![A small open economy produces two goods, l and 2, at output levels y;, i = 1, 2. Output
prices are set on world markets and denoted p1, p2. The economy is endowed with
quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used
in both sectors, L; denoting the use of labour in sector i= 1, 2. The wage rate and the
capital rental rate are w and r, respectively. The production function for good 1 is
Y1 = L1, and good 2 has production function y2 = VKL2.
What is the equilibrium allocation of labour between sectors (expressed as a function of
goods' prices and endowments)?
a. L1 = L - ()²K, L2 = ()²K.
O b. L1 = ()K,L2 = L – ()²K.
2p1
2p1
2p2
2p2
О с. Li 3D 0, Lg — L.
O d. L1 = L, L2 = 0.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F83f14b89-ea63-42d6-ad07-38e32c7bad9d%2F3bc13d1a-b709-4d39-bff9-4d7043e2eb25%2Fbtm6otm_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A small open economy produces two goods, l and 2, at output levels y;, i = 1, 2. Output
prices are set on world markets and denoted p1, p2. The economy is endowed with
quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used
in both sectors, L; denoting the use of labour in sector i= 1, 2. The wage rate and the
capital rental rate are w and r, respectively. The production function for good 1 is
Y1 = L1, and good 2 has production function y2 = VKL2.
What is the equilibrium allocation of labour between sectors (expressed as a function of
goods' prices and endowments)?
a. L1 = L - ()²K, L2 = ()²K.
O b. L1 = ()K,L2 = L – ()²K.
2p1
2p1
2p2
2p2
О с. Li 3D 0, Lg — L.
O d. L1 = L, L2 = 0.
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