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The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C,

The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C,

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C, W)=W^4/5C^1/5, find the relative equilibrium price? Discuss as to whether there is complete specialisation at this relative price? (ii) Assume that the relative equilibrium price of cotton to wheat in the world economy is 4/5, what amount of wheat would each of the countries produce?
Transcribed Image Text:The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C, W)=W^4/5C^1/5, find the relative equilibrium price? Discuss as to whether there is complete specialisation at this relative price? (ii) Assume that the relative equilibrium price of cotton to wheat in the world economy is 4/5, what amount of wheat would each of the countries produce?
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