Consider a country, Smaland, which is completely surrounded by its large neighbour, Bigland. The population of...

 

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Consider a country, Smaland, which is completely surrounded by its large neighbour, Bigland. The population of smaland is and is much smaller than the population of Bigland, which we can interpret as meaning that the total amount of labor available in Smaland, Nº, is much smaller than No, the total amount of labor available in Bigland. Assume further than the representative household of each country does not value leisure and is therefore happy to work all the time. We also assume, for simplicity, that travelling between the two countries is easy and costless, so that workers can work in their home country or in the other country if they are allowed to. 2. The representative firm of country i Y = F(N) when N¹ units of labour is used in country i, and that => 25. (a) Using a graph of the production functions, explain whether Bigland's standard of living is necessarily greater than that of Smalland if the border is closed. (8 points) (b) Using a graph of the production functions, explain what production in each country is like when there is freedom of movement between the two countries. (8 points) Consider a country, Smaland, which is completely surrounded by its large neighbour, Bigland. The population of smaland is and is much smaller than the population of Bigland, which we can interpret as meaning that the total amount of labor available in Smaland, Nº, is much smaller than No, the total amount of labor available in Bigland. Assume further than the representative household of each country does not value leisure and is therefore happy to work all the time. We also assume, for simplicity, that travelling between the two countries is easy and costless, so that workers can work in their home country or in the other country if they are allowed to. 2. The representative firm of country i Y = F(N) when N¹ units of labour is used in country i, and that => 25. (a) Using a graph of the production functions, explain whether Bigland's standard of living is necessarily greater than that of Smalland if the border is closed. (8 points) (b) Using a graph of the production functions, explain what production in each country is like when there is freedom of movement between the two countries. (8 points)

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ANSWER A The production function is a mathematical equation determining the relationship between the factors and quantity of input for production and the number of goods it produces most efficiently I... View the full answer