Question: the specific factors model 1 consider a family of farmers...
The specific factors model
1) Consider a family of farmers. Grandma owns the machinery necessary to produce corn, while Grandpa owns the machinery necessary to produce soybeans. Their children carry out the work required to produce both corn and soybeans. Assume that production functions for the two goods are concave in labor.
(a) Starting with the profit maximizing condition w = P × M P L, derive the diagram we have introduced in class. In the diagram, show the areas representing total wages and Grandma and Grandpa’s income.
(b) Assume now that the relative price of the two goods changes and assume also that the price of soybeans increases. How will this affect the income of the members of the family?
2) Consider again the specific factors model and assume that we are in Australia. In your opinion, which migration policy will be favored by the landowners in that country? Which one will be favored by the owners of manufacturing plants? Discuss your analysis using the diagram we have introduced in class.