Question

In: Economics

Currently 1000 workers are in the agricultural sector. They produce 800,000 kg of bananas. There is...

Currently 1000 workers are in the agricultural sector. They produce 800,000 kg of bananas. There is surplus labor of 100 workers. Toys are produced in the industrial sector. There is a kink in the production function at L=900, Q = 800,000.
Now suppose 200 workers go to the industrial sector. The remaining workers produce 750,000 kg bananas (thus surplus labor is gone). The P(bananas)/P(toys) =10 now. How much does the industrial sector have to pay each worker to come work in industry now ?

Solutions

Expert Solution

Since P(bananas)/P(toys) =10

And the reduction in the production of bananas = 800000-750000 = 50000

Total payment to the workers needs to be 10*50000 = 500000

Since there are 200 workers that have moved to the industry, payment to each worker woudl be

500000/200 = 2500

Rahul Sunny answered 1 year ago
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