#1. Consider a country in which there are 2 sectors called Sector 1 and Sector 2

ID: 1181011 • Letter: #

Question

#1. Consider a country in which there are 2 sectors called Sector 1 and Sector 2. The

production functions and the marginal products in the two sectors are:

Y1=(L1)^0.5 and MPL1=0.5/(L1)^0.5

Y2=(L2)^0.5 and MPL2=0.5/(L2)^0.5

where L1 is the number of workers employed in Sector 1 and L2 is the number of workers employed

in Sector 2. The total number of workers in the economy is 1,000. The only difference between the

sectors is that in Sector 1 workers are paid their marginal products, whereas in Sector 2 they are paid

their average products. Workers move freely between sectors so that the wages are equal.

(a) Calculate how many workers will work in each sector.

(b) Calculate the optimal number of workers in each sector.

allocation of workers, what sector has too many workers, and what sector has too small

employment?

#2. Which of 5 types of inefficiency described in Chapter 10 do you think is most

economically significant in the country that you know best. Explain why and give examples. (Don't

forget to name the country).

a) Sector1=200, Sector2=800

b) Sector1=Sector2=500

c)Sector2 has too many workers and Sector1 has too small workers.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.