1. (4 points) Consider the following specific-factors model. There are two sectors. In one sector, wild...

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1. (4 points) Consider the following specific-factors model. There are two sectors. In one sector, wild berries are collected by hand with the production function Yb = Lb. (1) In the other sector, a manufactured good is produced from labor and capital. The tech- nology is Ym = K = L / 1. The usual resource constraint is (3) L = Lb+Lm. We assume perfect competition in both sectors. (a) (1 point) Find the expression of production possibility frontier (PPF). Hint: the expression should include yb, ym, K, and K. (b) (1 point) Is the PPF concave to the origin? Hint: one possibility is finding the first and second derivatives of y, with respect to ym. (c) (2 points) Suppose when trade is allowed, Pm/pt increases relative to autarky, i.e. the manufactured good becomes more expensive relative to berries. For the following vari- ables, show whether they increase, decrease, or remain unchanged: L, Lm, w/pb, w/pm, r/pb, and r/pm. 1. (4 points) Consider the following specific-factors model. There are two sectors. In one sector, wild berries are collected by hand with the production function Yb = Lb. (1) In the other sector, a manufactured good is produced from labor and capital. The tech- nology is Ym = K = L / 1. The usual resource constraint is (3) L = Lb+Lm. We assume perfect competition in both sectors. (a) (1 point) Find the expression of production possibility frontier (PPF). Hint: the expression should include yb, ym, K, and K. (b) (1 point) Is the PPF concave to the origin? Hint: one possibility is finding the first and second derivatives of y, with respect to ym. (c) (2 points) Suppose when trade is allowed, Pm/pt increases relative to autarky, i.e. the manufactured good becomes more expensive relative to berries. For the following vari- ables, show whether they increase, decrease, or remain unchanged: L, Lm, w/pb, w/pm, r/pb, and r/pm.

Answer rating: 100% (QA)

a The production possibility frontier PPF can be obtained by solving for the maximum output of each sector subject to the resource constraint Maximize ... View the full answer