ECON 503 Lecture Notes - Lecture 2: Marginal Product, Mpla, Production Function
13 Sep 2016
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Home country: has the comparative advantage in wine. One worker produces: 4 bottles wine or 2 yards cloth. Autarky real wages: w/pc = mplc = 2 w/pw = mplw = 4. Foreign country: has the comparative advantage in cloth. One worker produces: 1 bottle wine or 1 yard cloth. Autarky real wages: w*/pc*= mplc*= 1 w*/pw*= mplw*= 1. 3 bottles of wine for 2 yards of cloth. Home country real wages with trade w/pw = 4 w = pw * mplw. Divide by pc on both sides w = 2/3*4 = 2. 6667. Workers in home country are better off with trade. Foreign country real wages with trade w/pc = mplc = 1 w = pc * mplc. Workers in foreign country are better off with trade. Costs: w*lm; rk * k rk : rental rate of capital. M = pm * a*f(k, lm) -w*lm- rk* k rx= 0. Mplm =dqm/dlm = (1- ) am * k * l- .
