5. In Home and Foreign, there are two factors each of production, land, and labo

Question

5. In Home and Foreign, there are two factors each of production, land, and labor used to produce only one good. The land supply in each country and the technol- ogy of production are exactly the same. The marginal product of labor in each country depends on employment as follows Marginal Product of Last Worker 20 19 18 17 16 15 14 13 12 Namber of Workers 10 12 10 Initially, there are 11 workers employed in Home, but only 3 workers in Foreign. Find the effect of free movement of labor from Home to Foreign on employment, production, real wages, and the income of landowners in each country

Explanation / Answer

Consider the given problem here we have given that in both the country the "tecnology" and "land" supply are same. Now in "F" the "L" employment is "3", => "MPL" is "18" => the real wage be "18" in "F", and in "H" the "L" employment is "11", => "MPL" is "10" => the real wage be "10" in "H".

Now, if they are permitted to move fomr "H" to "F", then "Labour" will start moving from "H" to "F", since in "F" real wage is more compared to "H".

So, as they move to "F", the real wage in "H" will start rising and in "F" will start falling. So, finally the new equilirium will be established at L=7" and MPL=14=w.

So, given the tecnology and the land supply the empolyment in "F" will increase and in "H" will decrease, the real wage in "F" decrease and in "H" will increase.

Similarly the production in "F" will increase and "H" will decrease, the income of the land owner will remain same in "F" and in "H". Since both country have same "technology" and "land" supply.

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