Consider the Heckscher-Ohlin model with two industries, X and Y, and two production factors, labor L...
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Consider the Heckscher-Ohlin model with two industries, X and Y, and two production factors, labor L and capital K. Good Y is chosen to be the numéraire. Let p denote the relative price of good X. The economy under consideration is a small open economy. Labor and capital are in fixed supply. The 13 1 1 = production functions are given by X KxLx and Y = K,L,, where Kx and Lx denote the inputs of capital and labor in the production of X, respectively, and where K, and Ly denote the inputs of capital and labor in the production of Y, respectively. Let w and r denote the factor prices of labor and capital in terms of the numéraire. (1) (2) (3) (4) Characterize the profit maximizing choice of the inputs of capital and labor in the two industries in verbal terms! 1 point Characterize the profit maximizing choice of the inputs of capital and labor in the two industries in analytical (mathematical) form. 4 points Use the conditions from (2) to analytically (mathematically) derive the relationship between the ratio of factor prices, and the goods price ratio p! 3 points W Derive the mathematical relationships (i.e. mathematical equations) between the goods price ratio P and (4-i) , (4-ii) w, (4-iii) –, and (4-iv) r implied by profit maximization! W p p Consider the Heckscher-Ohlin model with two industries, X and Y, and two production factors, labor L and capital K. Good Y is chosen to be the numéraire. Let p denote the relative price of good X. The economy under consideration is a small open economy. Labor and capital are in fixed supply. The 13 1 1 = production functions are given by X KxLx and Y = K,L,, where Kx and Lx denote the inputs of capital and labor in the production of X, respectively, and where K, and Ly denote the inputs of capital and labor in the production of Y, respectively. Let w and r denote the factor prices of labor and capital in terms of the numéraire. (1) (2) (3) (4) Characterize the profit maximizing choice of the inputs of capital and labor in the two industries in verbal terms! 1 point Characterize the profit maximizing choice of the inputs of capital and labor in the two industries in analytical (mathematical) form. 4 points Use the conditions from (2) to analytically (mathematically) derive the relationship between the ratio of factor prices, and the goods price ratio p! 3 points W Derive the mathematical relationships (i.e. mathematical equations) between the goods price ratio P and (4-i) , (4-ii) w, (4-iii) –, and (4-iv) r implied by profit maximization! W p p
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1 The profitmaximizing choice of inputs of capital and labor in the two industries can be characterized as follows In industry X The firm will choose ... View the full answer
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