Labor to allocate between the production of rice and pencils

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Reference no: EM131253285

Suppose that: In Malaysia the unit labor requirement to produce a pound of rice and a pencil are 1 and 2 hours of labor respectively; In Indonesia, the unit labor requirement to produce a pound of rice and a pencil are 2 and 3 hours respectively; each country has 10,000 hours of labor to allocate between the production of rice and pencils; and in autarky, Malaysia consumes 5,000 pounds of rice and 2,500 pencils. When trade occurs, the world relative price of rice (W R W P P P) becomes 3/5. Given that the marginal product of labor is the inverse of unit labor requirements, answer the following questions:

a. In Malaysia, what are the marginal productivities of labor in rice and pencil production?

b. In Indonesia, what are the marginal productivities of labor in rice and pencil production?

c. What are the autarkic (pre-trade) relative prices of rice and pencils respectively in each country?

d. In which product will each specialize?

e. What happens to wages in each country when trade occurs?

Reference no: EM131253285

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