An economy can produce good 1 using labour and capital and good 2 using labour and land. The total supply of labour is 100 units. Given the supply of capital and land, the marginal products of labour for the two goods are as follows:

Workers Employed	MPL in Sector1	MPL in Sector 2
10	150	140
20	115	105
30	90	85
40	72	70
50	60	60
60	50	52
70	42	45
80	36	40
90	32	37
100	30	36

a) Suppose that the price of good 1 is $1 and the price of good 2 is $2. Determine graphically the wage rate and the allocation of labour between the two sectors. 

b) Suppose that the relative price of good 2 falls to 1. Repeat a). 

c) Calculate the effects of the price change on the income of the specific factors in sectors 1 and 2.
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Question Workers MPL Employed infor I 150 0 20 30 40 50 8 f 60 70 100 115 90 72 60 ... View the full answer