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Answer to Question #44836 in Finance for Mohseen Khan
Question #44836
The production function for commodity 1 is q1 = min{K / 2, L / 2} and for commodity 2 is q2 =min{K / 3, L}. The wage rate is w and the rental price of capital in r.
(a) Write the pricing equations for the two commodities under perfect competition.
(b) Assume that 1 p =4 and 2 p =3. Determine the equilibrium w/r when both commodities are produced.
(c) Holding p2 fixed consider an increase in the price of commodity 1 to p1 =5.
Determine the new equilibrium w/r. Relate your findings in (b) and (c) to a theoretical result of the Standard Trade Theory.
(a) Write the pricing equations for the two commodities under perfect competition.
(b) Assume that 1 p =4 and 2 p =3. Determine the equilibrium w/r when both commodities are produced.
(c) Holding p2 fixed consider an increase in the price of commodity 1 to p1 =5.
Determine the new equilibrium w/r. Relate your findings in (b) and (c) to a theoretical result of the Standard Trade Theory.
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