Problem 2.

_9_ (A)_8_(B)_5_(C)_8_(D). (Use these values throughout the problem)

Using the set of number generated from your student ID number above create the following parameters to use in solving a Specific Factor Model.

An economy has two sectors, a food (denoted by F) sector and a manufacturing sector (denoted by M).The food sector uses a specific factor, land (denoted by a T), and a mobile factor, labour (denoted by L_F), to produce food.The manufacturing sector uses a specific factor, capital (denoted by a K), and a mobile factor, labour (denoted by L_M), to produce manufactured goods.The marginal products of labour in producing food and manufactured goods are

Where A and C in the equations are the digits from your student ID number.

Let the price of a unit of food be given by B and the price of a unit of manufactures by D.

The labour force, L = L_F + L_M,is given by 10x(A+C) where A and C are again digits from your ID number.

(Example: using the sample values 6 (A)7(B) 8(C) 3(D) we have

, , L = 140, P_F = 7, and P_M = 3,

And labour demands (value of marginal product) are ,

i)Graph the two value of marginal product curves on the same graph (as in class and class notes) with the labour force on the horizontal axis.Correctly label the intercepts of the two curves on the horizontal and vertical axes.(Note that given the length of the horizontal axis either or both of the value of marginal product curves may not have a horizontal intercept.)

P_FMP_L^F. As the Left Vertical (y)axis

P_MMP_L^M As the Right vertical (y) axis

Labour as the X-axis

ii)Determine the equilibrium nominal wage and the labour force in manufacturing and food production.Show this on your graph above. Show your work

Nomimal wage = ________________

L_F = ______________

L_M = ______________

iii)Determine the income of landowners, capitalists, and labour.What is GDP? Show your work

Labour income = ________________

Capitalists income = ______________

Landowners income = _____________

GDP = ______________________

iv)Determine the quantity of food and manufactures produced. Show work

Food produced = ________________

Manufactured goods produced = ______________

v)Redo (ii) and (iii) if the labour force increases by 20. Show work

Nomimal wage = ________________

L_F = ______________

L_M = ______________

Labour income = ________________

Capitalists income = ______________

Landowners income = _____________

GDP = __________________