Solution:
As Sri Lanka has lower wages than Canada, value of L/w (labor/wage rate) is higher for Sri Lanka. In relative terms, this means that K/r (capital/rental rate) is higher for Canada.
Thus, we can say that Sri Lanka must be more labor intensive and Canada must be more capital intensive.
d) 3 marks. Suppose that both Canada and Sri Lanka have the following production function: Y...
3. Why Doesn't Capital Flow to Developing Countries? The Canadian Econ- omy is described by the following information on output, consumption, fiscal policy and investment: Y = 5,000 C = 250 +0.75(Y – T) T = 1,000 G = 2,000 I(r) = 1,000 – 50r Canada is a small open economy. a) If the world interest rate is equal to 5, what are net exports? Is Canada lending or borrowing from the rest of the world? b) The country of...
1. Consider the following production functions. In each case determine if: • the function is Cobb Douglas (Y = AK 11-a). If the function is Cobb Douglas, what is the value of the parameter a? • Do capital and labor exhibit diminishing returns. Explain your thinking using algebra / calculus /a graph etc. (a) F(K, L) = 27K+15VL (b) F(KL) = 5K + 3L (c) F(KL) = K0.5 0.5 (a) F(KL) - VK2 + L2 2. Suppose that the production...
Country A and country B both have the production function Y = F(K, L) = K1/3L2/3. a) What is the per-worker production function, y = f(k)? b) Assume that neither country experiences population growth or technological progress and that 10 percent of capital depreciates each year. Assume further that country A saves 15 percent of output each year and country B saves 25 percent of output each year. Using your answer from part (a) and the steady-state condition that investment...
(10 marks) Suppose there exist 2 countries, Home and Foreign; 2 goods, X and Y; and 2 factors of production, labour (L) and capital (K). Each country can produce both goods. X is labour-intensive and Y is capital-intensive. Home is labour-abundant and Foreign is capital-abundant. Assume that the standard assumptions of the Heckscher-Ohlin model hold. When answering the following question, please support each of your arguments with detailed analysis and draw the relevant diagrams to support your answer. Consider a...
1. lounchPad LounchPad . Country Country A and country B both have the production function Y = F(K, L) = K1/312/3 Does this production function have constant returns to scale? Explain. b. What is the per-worker production function, y = f(k)? c. Assume that neither country experiences population growth or technological progress and that 20 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country B saves 30 percent of...
WRITING MUST BE CLEAR TO READ!
3. Country A and country B both have the production function Y = F(K, L) = K^(1/3) L ^(2/3). 3a. Does this production function have constant returns to scale? Explain. 3b. What is the per-worker production function, y = f(k)? 3c. Assume that neither country experiences population growth or technological progress and that 20 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country...
1. Country A and country B both have the production function Y = F(K,L)= VKL. (5 Points) Does this production function have constant returns to scale? Explain. (5 Points) What is the per-worker production function, y=f(k)? (10 Points) Assume that neither country experiences population growth or technological progress and that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country B saves 20 percent of output each year. Using...
international trade: Internal Economies of
Scale
Problem 1 Suppose two countries, Canada and Japan are considering making computers. Firms in each individual country are identical and symmetric in their cost structures. It costs $5 Million to set up a computer production facility and then an addition $20 to make each computer individually, in either country. The price at which each firm can sell its computers is affected by the amount of firms it must compete with, and is given by...
Assume that two countries both have the per-worker production function y = k1/2, neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If A starts out with a capital–labor ratio of 4 and B starts out with a capital–labor ratio of 2, in the long run: A) both A and B will have capital–labor ratios of 4. B) both...
Suppose an economy described by the Solow model has the following production function: 1/2 1/2 Y=K (LE) . a. For this economy, what is f(k)? b. Use your answer to part (a) to solve for the steady-state value of y as a function of s, n, g, and ?. c. Two neighboring economies have the above production function, but they have different parameter values. Atlantis has a saving rate of 28 percent and a population growth rate of 1 percent...