1. The specific-factors model is often referred to as the short-run model. Why is this the...

 

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1. The specific-factors model is often referred to as the short-run model. Why is this the case and how does it relate to the marginal product of labor (MPL) in each sector and the production possibilities frontier (PPF)? 2. Assume that there are only 100 workers in the economy (i.e. LA + LB = 100; so anyone not working in Sector A works in Sector B). The marginal product of labor curves corresponding to the production functions in problem 2 are as follows Workers Employed in Sector A MPL in Sector A MPL in Sector B 1.75 0.40 10 1.51 0.43 20 1.14 0.46 30 1.00 0.50 40 0.87 0.54 50 0.78 0.60 60 0.74 0.69 70 0.69 0.82 80 0.66 1.05 90 0.63 1.59 100 0.60 1.80 a. Suppose the price of good A is $10 and the price of good B is $20. Determine the equilibrium nominal wage and labor distribution in this economy. ( b. Sketch a graph of the labor market and mark the equilibrium wage and labor distribution. c. Suppose the price of good B decreases to $13. Determine the new equilibrium wage rate and labor distribution. Illustrate this effect on the graph you drew in part (b). d. Calculate the real wage in terms of good A and good B before and after the price change. Are workers better or worse off because of it? 1. The specific-factors model is often referred to as the short-run model. Why is this the case and how does it relate to the marginal product of labor (MPL) in each sector and the production possibilities frontier (PPF)? 2. Assume that there are only 100 workers in the economy (i.e. LA + LB = 100; so anyone not working in Sector A works in Sector B). The marginal product of labor curves corresponding to the production functions in problem 2 are as follows Workers Employed in Sector A MPL in Sector A MPL in Sector B 1.75 0.40 10 1.51 0.43 20 1.14 0.46 30 1.00 0.50 40 0.87 0.54 50 0.78 0.60 60 0.74 0.69 70 0.69 0.82 80 0.66 1.05 90 0.63 1.59 100 0.60 1.80 a. Suppose the price of good A is $10 and the price of good B is $20. Determine the equilibrium nominal wage and labor distribution in this economy. ( b. Sketch a graph of the labor market and mark the equilibrium wage and labor distribution. c. Suppose the price of good B decreases to $13. Determine the new equilibrium wage rate and labor distribution. Illustrate this effect on the graph you drew in part (b). d. Calculate the real wage in terms of good A and good B before and after the price change. Are workers better or worse off because of it?

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b c d 1 Specific factor model in which specific factors of production are fixed example land which c... View the full answer