What is the equilibrium wage and rental rate for capital

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Townville only produces Kale Pops and Krab Rings. Kale Pops are made using the technology Qkp= min (1/2K, L) and Krab Rings are made using a technology Qkr= min (k, 1/3L). These goods are traded internationally and Townville is so small that nothing that happens there will impact international price.

-What is the equilibrium wage and rental rate for capital in Townville if the international prices for Kale Pops is $2 and for Krab Rings is $2?

-Now suppose that the international price for Kale Pops increases to $2.50. What happens to wages? What happens to the rental rate on capital?

-Suppose Steve owns one unit of labor and one unit of capital. Would he be better or worse off after the increase in the price of krabby patties?

Reference no: EM131387769

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