ECON 440 Fall 2012 – Problem Set 2 Due Sunday, September 23 by 11:59pm MST XXXXXXXXXXUse the...

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ECON 440 Fall 2012 – Problem Set 2  Due Sunday, September 23 by 11:59pm MST XXXXXXXXXXUse the following information to answer the questions below. Assume that, as per the normal assumptions of the specific factors model, production of Pants uses labor and capital but no land and production of Soybeans uses labor and land but no capital.    Pants: Sales revenue: Pp . Qp = 150  Payments to labor: W . Lp = 75  Payments to capital: RK . K = 75    Soybeans: Sales revenue: Ps . Qs = 150  Payments to labor: W . Ls = 70  Payments to land: RT . T = 80    Holding the price of pants (Pp) constant, suppose the percentage increase in the price of soybeans (Ps) is 20% and the percentage increase in wage is 5%. [Answer using math and show your work.]  a. Determine the impact of the increase in the price of soybeans on the rental rate of land. (3 points)  b. Determine the impact of the increase in the price of soybeans on the rental rate of capital XXXXXXXXXXpoints)  c. Determine the impact of the increase in the price of soybeans on the welfare (real wage) of labor. (3 points XXXXXXXXXXSummarize your finding in problem 1 in words. (6 points)      
	
Document Preview: ECON 440 Fall 2012 – Problem Set 2Due Sunday, September 23 by 11:59pm MSTUse the following information to answer the questions below.  Assume that, as per the normal assumptions of the specific factors model, production of Pants uses labor and capital but no land and production of Soybeans uses labor and land but no capital.Pants:	Sales revenue: Pp . Qp = 150Payments to labor: W . Lp = 75Payments to capital: RK . K = 75Soybeans:	Sales revenue: Ps . Qs = 150Payments to labor: W . Ls = 70Payments to land: RT . T = 80Holding the price of pants (Pp) constant, suppose the percentage increase in the price of soybeans (Ps) is 20% and the percentage increase in wage is 5%. [Answer using math and show your work.]Determine the impact of the increase in the price of soybeans on the rental rate of land. (3 points)Determine the impact of the increase in the price of soybeans on the rental rate of capital XXXXXXXXXXpoints)Determine the impact of the increase in the price of soybeans on the welfare (real wage) of labor. (3 points)Summarize your finding in problem 1 in words. (6 points)

David · Accepted Answer

Solution to question 1 
 
 
The following is given to us in the above example of specific factor model: 
 
The two goods produced in the economy are:  
p = pants and s= soyabeans 
The three factors of production are: 
land, labor and capital.  
We assume labor to be mobile such their wages remain the same across sectors. We also assume 
that factors market is competitive such that each factor is paid its factor prices in the way that 
that following holds: 
 
                               VMPLS= MPLS PS = W 
                               VMPKP= MPKP PP = RK 
                               VMPTS= MPTS PS = RT 
a. When the ps rises, the producers of s would like to produce more.

ECON 440 Fall 2012 – Problem Set 2 Due Sunday, September 23 by 11:59pm MST XXXXXXXXXXUse the following information to answer the questions below. Assume that, as per the normal assumptions of the...

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