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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 Lof 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 lis y = L1.and good 2 has production function y = vKL. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? O a. L =L-(²K,L2 = (*K. O b. L = K,L=L-(K. O. L = 0, L= L. O d. L = L, L2 = 0. %3D

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 Lof 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 lis y = L1.and good 2 has production function y = vKL. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? O a. L =L-(²K,L2 = (*K. O b. L = K,L=L-(K. O. L = 0, L= L. O d. L = L, L2 = 0. %3D

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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12:42 AM 0.0KB/s L O A M 4 expert.chegg.com/expei (7 Economics A small open economy produces two goods, 1 and 2, at output levels yi, 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 y = L1, and good 2 has production function y2 = VKL. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? O a. L = L-)°K,L2 = (*K. O b. L= (K,L =L-(K. O c. L = 0, L = L. O d. L = L, L2 = 0. Consider the economy form Question 4. Suppose that there is another economy, which is identical to the first one but has a greater endowment of capital K' > K.What is the output of good 2 in either economy? Assuming that consumers in both countries are identical, what is the pattern of trade between those two countries? The first country produces y2 = K and the second country produces y = K'. Therefore, the first country exports good 1 and imports good 2. O b The first country produces y2 L EK and the second country produces y, = L - K'. Therefore, the first country exports good 2 and imports good 1. O c. The first country produces yn = K and the second country produces y, = K'. Therefore, the first country imports good 1 and exports good 2. O d. The first country produces y2 = L - K and the second country produces y = L - K'. Therefore, the first country imports good 2 and exports good 1.
Transcribed Image Text:12:42 AM 0.0KB/s L O A M 4 expert.chegg.com/expei (7 Economics A small open economy produces two goods, 1 and 2, at output levels yi, 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 y = L1, and good 2 has production function y2 = VKL. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? O a. L = L-)°K,L2 = (*K. O b. L= (K,L =L-(K. O c. L = 0, L = L. O d. L = L, L2 = 0. Consider the economy form Question 4. Suppose that there is another economy, which is identical to the first one but has a greater endowment of capital K' > K.What is the output of good 2 in either economy? Assuming that consumers in both countries are identical, what is the pattern of trade between those two countries? The first country produces y2 = K and the second country produces y = K'. Therefore, the first country exports good 1 and imports good 2. O b The first country produces y2 L EK and the second country produces y, = L - K'. Therefore, the first country exports good 2 and imports good 1. O c. The first country produces yn = K and the second country produces y, = K'. Therefore, the first country imports good 1 and exports good 2. O d. The first country produces y2 = L - K and the second country produces y = L - K'. Therefore, the first country imports good 2 and exports good 1.
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