The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C, W) W^4/5C^1/5, find the relative equilibrium price? Discuss as to whether there is complete specialisation at this relative price? (ii) Assume that the relative equilibrium price of cotton to wheat in the world economy is 4/5, what amount of wheat would each of the countries produce?

The unit labour requirements of the production of cotton are 2 and 3 and for wheat is 4 and 5 for Lincolnland and Smithland, respectively. Labour in Lincolnland and Smithland are taken to be 400 and 200 respectively. (i) If labour is the only factor of production and tastes and preferences of the consumers in both countries are alike and captured by U(C, W) W^4/5C^1/5, find the relative equilibrium price? Discuss as to whether there is complete specialisation at this relative price? (ii) Assume that the relative equilibrium price of cotton to wheat in the world economy is 4/5, what amount of wheat would each of the countries produce?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.12P

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