mono105
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Suppose there are two goods, Cloth and Food, and two factors of production, labour
and capital. Suppose that the production function for each good is \homothetic". Put
capital K in the vertical axis and labour L in the horizontal axis. For Cloth production,
for any ray from the origin that has a slope of x, the slope of a tangent of an isoquant
at a point which crosses this particular ray is -4x. For Food production, for any ray
from the origin that has a slope of y, the slope of a tangent of an isoquant at a point
which crosses this particular ray is -5y.


(a) Draw the isoquants for the production of Cloth and of Food.
(b) Draw the two curves relating the capital to labour ratio (K/Lin the horizontal axis) with the wage to rental ratio (w/r in the vertical axis) for the production of
Cloth and for the production of Food. What can you say about the relative factor
intensities of the two sectors?
(c) Find the capital to labour ratios for both Food and Cloth when
w/r = 3 and w/r = 4.

Using the data from the previous exercise, suppose that there are two countries, A and
B, that have the same technology described above for Cloth and Food. Before trading
with each other, Country A employs 30 units of K and 15 units of L in the Cloth
industry. In the Food industry it employs 40 units of K. Country B employs K = 45,
L = 15 in the Food industry and K = 30 in the Cloth industry.
(a) Determine the factor prices w/r in country A in the two sectors and the amount of
L employed in the Food industry.
(b) Determine the factor prices w/r in country B in the two sectors and the amount of
L employed in the Cloth industry.
(c) Determine the comparative advantage for each country and the trade pattern.
Which group in A will oppose opening up trade and why?



I am pretty sure I have managed to do the first two parts of the first question, but I have no idea how to find the relationship between w/r and K/L given the current information.
I am not really sure how to start the second one either so any point in the right direction would be appreciated.
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anr1g11
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The isoquants are curved though right? So surely that's wrong.

Im doing this too, it's so hard haha
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Hatchet
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Ha, trade at soton uni by any chance? This question and the next are total *****. The isoquant is a curve and its tangent should have the gradient given in the question. I'm just having trouble rationalising a relationship for the factor prices and capital to labour ratio.
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anr1g11
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The joys of Southamptons economics department. I kept getting confused because I was thinking of the line y=x rather than gradient of x, so just sub in a couple of numbers for x, draw out the isoquants and such. Then for the bit where you work out the factor prices i think the gradients are equal to K/L, and the gradients of the tangents are w/r. But then again, I suck at economics so that could be completely wrong
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mono105
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Curved isoquants crossing a straight line at all at the same gradient then?
Also are we expected to do have figures in the diagram for part B about factor intensity?

And then I literally have no idea what to do for anything else
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anr1g11
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SO screwed. I have basically just been drawing lines for the last 5 hours.
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mono105
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I've just edited the thread to see if anyone can help with it, I'm not really sure how to get past part (c) on the first question. And not totally sure how to start the next one either.
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Hatchet
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There is a relationship between K/L and w/r. Apparently we can work it out numerically by using the slopes of the rays and the slopes of the tangents that he refers to in the exercise.
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mono105
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Well the slope of the rays are x and y with the tangency points having gradients of -4x and -5y respectively. I don't really see a way to find a link between these two without assuming they are normal to each other (which I don't think you can do).
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Hatchet
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The most annoying thing about the question is that there is such little info given that the answer must be simple to work out once you know how to do it. Its just deducing the answer that makes most sense given the "info" we've be given is death.
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mono105
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Have you managed to do any of the next question without completing this one?
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Hatchet
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Question 3 is a bit of guess work for me, I've been quite busy today so will look at it tomorrow but I'm unsure of what data I need from question 2 to complete it.
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anr1g11
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I've completed it ! After 11 hours continuous work. But I just made LOTS of assumptions, and I can't really explain what I've done. Do I actually know any of you? I'm Ashley Rawlings, by the way. So if you know who I am then might be easier to have a look at what me and my lot have done, we think its right.
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Hatchet
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(Original post by anr1g11)
I've completed it ! After 11 hours continuous work. But I just made LOTS of assumptions, and I can't really explain what I've done. Do I actually know any of you? I'm Ashley Rawlings, by the way. So if you know who I am then might be easier to have a look at what me and my lot have done, we think its right.
Yeah same, too many assumptions for my liking and I've been out of Southampton past couple days so have had to do it myself and I suck. We'll find out how good or bad it went in tomorrows class anyway. Hope
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Lkb87
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I have this coursework now does anyone know where to start or could point me in the right direction?
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lemon8
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(Original post by Lkb87)
I have this coursework now does anyone know where to start or could point me in the right direction?
lol same and am finding it virtually impossible, have you made any progress?
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