Suppose a country can produce two goods, bread and TVs. Both goods use labor in production....
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Suppose a country can produce two goods, bread and TVs. Both goods use labor in production. Capital is specific to TV production and land is specific to bread production. The production functions are specified as follows: 1 YTv = K (LT) 1 YB = T (LB) 3.4. Show that the marginal product of land is increasing in the amount of labor in bread sector per amount of land. (3 points) 3.5. Suppose the country engages in international trade and takes the world prices of TV and bread, PTV and PB, as given. Show that an increase in the relative price of TVs will lead to a shift of labor from bread to TV sector. Hint: show that LTV increases if PTV increases. Illustrate the shift on the graph below, assuming relative price changed due to increase of Pry. (5 points) LB PB Wage OTV [ Total labor supply Suppose a country can produce two goods, bread and TVs. Both goods use labor in production. Capital is specific to TV production and land is specific to bread production. The production functions are specified as follows: 1 YTv = K (LT) 1 YB = T (LB) 3.4. Show that the marginal product of land is increasing in the amount of labor in bread sector per amount of land. (3 points) 3.5. Suppose the country engages in international trade and takes the world prices of TV and bread, PTV and PB, as given. Show that an increase in the relative price of TVs will lead to a shift of labor from bread to TV sector. Hint: show that LTV increases if PTV increases. Illustrate the shift on the graph below, assuming relative price changed due to increase of Pry. (5 points) LB PB Wage OTV [ Total labor supply
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