We are looking at an industry that produces a commodity y using two production resources, a natural resource A and labor L. A is a non-duplicable resource, and we assume that the supply of A is inelastically equal to A = 2. We refer to q as the equilibrium price of A. L is duplicable and can be obtained in the market at a given price w = 1. The product function in the industry, y = F (A, L), is characterized by constant yield. There is no substitution between the factors of production, and we assume that the production of k units of the product, requires the use of k units of A and k units of L. The demand in the market is given by y = 10. The ownership of the natural resource A is scattered, and there is further competition between many companies that produce the product y.

a) Discuss price formation in the market, both with regard to the product price p and the equilibrium price of the natural resource, q.

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a Discuss price formation in the market both with regard to the product price p and the equilibrium price of the natural resource q ANS WER I n this m... View the full answer