Develop a factors model produce cookies-hot chocolate

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Reference no: EM133253706

Assignment:

Consider a Specific-Factors model where two countries, Domestic and Foreign, produce cookies (C) and hot chocolate (H). A-type capital is a factor specific to cookies and J-type capital is a factor specific to hot chocolate. Suppose that Domestic has L = 100 workers, 40 units of J-type capital and 1000 units of A-type capital. The production functions and marginal products of labor for cookies and hot chocolate are:

C = 4×L0.5 ×A0.5 (1) C

MPLC =2×L-0.5 ×A0.5 (2) C

H =4×L0.5 ×J0.5 (3) H

MPLH =2×L-0.5×J0.5 (4) H

1. Suppose that the price of cookies is 20 and the price of hot chocolate is 200. How many workers will be employed in each industry? What will the wage rate be?

2. Suppose that the price of cookies is 20 and the price of hot chocolate is 300. How many workers will be employed in each industry? What will the wage rate be?

3. Are workers better off before or after the rise in the price of hot chocolate?

Reference no: EM133253706

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