QUESTION 4A small open economy produces two goods, 1 and 2, at output levels y;, i = 1, 2. Output prices are set on world markets and denoted p1, P2.The economy is endowed with quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used in both sectors, L;denoting the use of labour in sector i = 1, 2. The wage rate and the capital rental rate are w and r, respectively. The production function for good1 is y1 = L1 , and good 2 has production function y2 = VKL2.What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)?O a. L = L – ()°K,L2 = (K.O b. L = (K, L2 = L – ()°K.O c. L1 = 0, L2 = L.O d. L = L, L2 = 0.%3DConsider the economy form Question 4. Suppose that there is another economy, which is identical to the first one but has a greater endowmentof capital K' > K.What is the output of good 2 in either economy? Assuming that consumers in both countries are identical, what is thepattern of trade between those two countries?a. The first country produces y2 = K and the second country produces y, = K'. Therefore, the first country exports good 1 and2p,imports good 2.O b. The first country produces y2 = L –-K and the second country produces y, = L – K'. Therefore, the first country exports%3Dgood 2 and imports good 1.O c. The first country produces y2 = K and the second country produces y, = K'. Therefore, the first country imports good 1 andexports good 2.O d. The first country produces y2 = L – K and the second country produces y2 = L – K'. Therefore, the first country imports%3D2p2p.good 2 and exports good 1.

Given,A small economy producing 2 goods: good 1 and good 2Labor and capital are the factors of…

QUESTION 4 A small open economy produces two goods, 1 and 2, at output levels y, i = 1, 2. Output prices are set on world markets and denoted P1, P2. The economy is endowed with quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used in both sectors, Li denoting the use of labour in sector i = 1,2. The wage rate and the capital rental rate are w and r, respectively. The production function for good 1 is 1 L₁, and good 2 has production function 1/2 = √KL2. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? O a. L₁ L-(K, L₂ = (1)²K. O b. L (K, L₂ = L-(,)²K. O c. L₁ =0, L2 = L. O d. L₁ =L, L2 = 0.

QUESTION 4 A small open economy produces two goods, 1 and 2, at output levels y, i = 1, 2. Output prices are set on world markets and denoted P1, P2. The economy is endowed with quantities L of labour and K of capital. Capital is used in sector 2 only, and labour is used in both sectors, Li denoting the use of labour in sector i = 1,2. The wage rate and the capital rental rate are w and r, respectively. The production function for good 1 is 1 L₁, and good 2 has production function 1/2 = √KL2. What is the equilibrium allocation of labour between sectors (expressed as a function of goods' prices and endowments)? O a. L₁ L-(K, L₂ = (1)²K. O b. L (K, L₂ = L-(,)²K. O c. L₁ =0, L2 = L. O d. L₁ =L, L2 = 0.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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