Question

Consider a country that produces two goods cloth (C) and food (F) with two factors of production: land (T) and labor (L). The technology for cloth and food are as follows.

Qc= Min {1/20 L,T}, Qf= Min {1/5 L,T}, where Qc denotes the amount of cloth produced and Qf denotes the amount of food produced. Denote the wage by w and the rent of land by r.

A).Suppose that the economy’s total resources are 600 hours of labor and 60 units of land. Determine the allocation of labor and land between the two goods algebraically and then show it diagrammatically.

B).Now suppose that the labor supply increases first to 800, then 1000, then 1200 hours. In each case, determine the allocation of labor and land between the two goods algebraically and then show them diagrammatically. Verify the Rybczynski’s theorem.

Answer 1