Create new prices and new exchange rate that will yield ppp

Reference no: EM1347513

Q. CARICOM Products Limited production function is lnQ = 4.63 + 0.392lnK + 0.824lnL. Given that price of labour (L) is $40 and the price of capital (K) is $20. How do you get the optimal mix?

Q. Create an example of automobile prices in London and New York where PPP holds. Assume initially that the exchange rate is $2 per pound, and a particular car sells for $20,000 in New York and 10,000 pounds in London. Create new prices and a new exchange rate that will yield PPP.

Reference no: EM1347513

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