What is total employment in industry in year

Assignment Help Business Economics
Reference no: EM131092884

Consider the economy of Lewisville, which is just beginning to industrialize. The economy was entirely reliant on corn production until now. There are 100 identical families each farming their own land. Each family has 6 members who participate equally in farm work and share the output. Each farm has a small land area and can employ up to 3 full time workers, each of whom produce 1 unit of corn each. Beyond 3 workers, additional workers generate no additional farm output. Hence farm output c=min{3,x} where x is the number of workers on the farm. In response to an industrialization policy adopted by the government, new factories have recently started opening up in Lewisville. Each new factory produces shirts using labor, and the marginal product of labor in each factory is 10-y, where y is the number of workers. Workers are free to move between farm and factory with no migration or transport costs. Factories are owned by entrepreneurs who maximize profits. They save 10% of their profits and invest these profits to build new factories, which start the following year. Each new factory requires a set up cost equal to 32 shirts. Lewisville trades with the rest of the world and is too small to affect world prices. Hence, shirt and corn prices are fixed: the price of corn relative to shirts is 4, and each shirt can thus be sold at a price of 0.25 units of corn.

(a) Before the factories arrive, what is the average product of labor (corn output/worker) in each farm? What is the marginal product of labor? What proportion of the economy’s labor force is surplus?

(b) In year 1, 20 new factories arrive. With wages in agriculture set to the average product of labor and free mobility between sectors, what will the wage rate in the industrial sector be in units of shirts? How many workers will each factory employ in year 1? [Hint: Wage_I = APL_A * P_A (where P_A is price of corn relative to shirts).]

(c) What is total employment in industry in year 1?

(d) Will there be surplus labor in agriculture in year 1?

(e) How many factories will there be in year 2 given that each factory earns of a profit of 32 (=1/2*y*(10-W_I)) in year 1?

(f) Will there be surplus labor in agriculture in year 2?

(g) Suppose the government introduces a tax credit that increases the savings rate to 0.45. How many more years will it take for all surplus labor to transition out of agriculture?

Reference no: EM131092884

Questions Cloud

Discuss the rights and liabilities of the partners : Sophia and Ben did not know about this order until the films were delivered at their shop, with a bill for $8,000.00. Sophia and Ben were furious on learning of this transaction and contacted Lemon International Ltd to pick these goods from their par..
What is last year margin : 4. What is the margin related to this year's investment opportunity? How did you get this answer? 5. What is the turnover related to this year's investment opportunity? How did you get this answer?
Key information for the plant city division : Barkley Industries is concerned that the focus on cost cutting, asset sales and no new investments will have an adverse long-run effect on PCD's customers. Yet Barkley wants PCD to meet its financial goals. What other measurements, if any do you reco..
What is the market proxy : You will be assigned eighteen (18) stocks from the current S&P 500 index. You must use these 18 stocks (or, more precisely, the ticker symbols) to download data from yahoo.com. Go to yahoo.com, then Finance, then type in your ticker symbol. Next choo..
What is total employment in industry in year : Consider the economy of Lewisville, which is just beginning to industrialize. The economy was entirely reliant on corn production until now. There are 100 identical families each farming their own land. Each family has 6 members who participate equal..
Find the equilibrium price and quantities for the case : In a city, the Taxi industry is regulated by the Government Taxi Authority. A company can only supply taxi services, if it is issued a licence by the Government taxi Authority. Suppose that the Government Taxi Authority issues two licenses, to Big Be..
Lawn mowing : Lawn mowing. John's father has a motorized lawn mower. He borrowed it to earn extra money during the summer mowing the neighbors' front yards. He charges $18 for each front yard and employs a classmate at $7 a day to help. He can do at most 8 yards i..
Firm has estimated that the marginal product of labor : In the short run, labor is the only variable factor used by a firm in the production of a certain product. The manager of the firm has estimated that the marginal product of labor is given by MPL = 160/√L. The firm is maximizing profits by employing ..
Sports and move to discussion of competition in business : Gini & Marcoux give a discussion of Competition. They begin with a discussion of sports and move to a discussion of competition in business. What do they say are some of the similarities and differences between competition in sports and in business. ..

Reviews

Write a Review

 

Business Economics Questions & Answers

  Statement reveal about the financial performance of t-mobile

What 3 items of important information does the income statement reveal about the financial performance of T-Mobile over the last three years?

  Size of the smallest payment and the largest payment

A boat is purchased by financing $40000. The loan is to be paid over a 5 year period with annual payments based on a 12% interest rate. Each successive payment is scheduled to be 10% greater than the previous one. Determine the size of the smallest p..

  Explain the economic effects of spillover benefits

Explain the economic effects of spillover benefits? Thoroughly and completely explain how spillover benefits are corrected and the economic implications of the corrections?

  Normal form of the game and derive all of nash equilibria

Consider a firm with two agents – 1 and 2. Both agents have to choose between two options: Client Focus or Cost Focus. If both choose Client the payoffs to 1 are 20 and 10 to agent 2. Assume that the agent choose their actions simultaneously. Draw th..

  Focus on its spot exchange rate

If you wanted to assess the competitiveness of a country, would you focus on its spot exchange rate, its real exchange rate, its effective exchange rate, or some other measure of the company's currency's value? Explain

  A firm has a monopoly on a new type of gaming console

A firm has a monopoly on a new type of gaming console. The market demand is given by P=175.3-0.003*Q and thus marginal revenue is MR=175.3-0.006*Q. The monopolist's marginal cost is MC=5.2+0.001*Q. Calculate the profit-maximizing production quantity.

  What historical events demonstrate various relationships

Following WWII, a rift emerged between the capitalist nations of the West and the communist nations of the East after World War II. In an attempt to orchestrate the economic and internal affairs of Eastern European communist nations, the Soviet Union..

  A state meat inspector in iowa has been given the assignment

A state meat inspector in Iowa has been given the assignment of estimating the mean net weight of packages of ground chuck labeled "3 pounds.

  The council of economic advisors

Suppose the Council of Economic Advisors (CEA) hired you as an Economist (Economic consultant). The head of the council tells that she believes the current unemployment rate of 5.5% is not great. They would like to increase real aggregate output (RGD..

  Explain how much profit will the perfectly competitive firms

Explain how much profit will the perfectly competitive firms earn. Explain how much profit will the monopoly firm earn.

  Firms short-run demand for labor downward-sloping

Recall that the Law of Demand states that demand curves are always downward-sloping. That is, people want to buy more of some good when its price is lower. Why is a firm’s short-run demand for labor downward-sloping?

  Role in the health care system

An important element of our emerging health care system is informatics. Define informatics, their role in the health care system and the potential they have to achieve cost reductions and improved quality of care. Write a 2-3 page paper double spaced..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd