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Dr. Strange
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Apr 18, 2016; 12:01pm
International Trade
148 posts
http://discussion-forum.2150183.n2.nabble.com/file/n7578285/June20_Trade.png
For the above problem Sir gave the following answer: Can anyone explain how he got the second part answer.Thanks in advance.
Arya
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Apr 18, 2016; 6:25pm
Re: International Trade
8 posts
Sir please help.
samuraijack
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Apr 19, 2016; 4:33pm
Re: International Trade
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by Dr. Strange
I am getting the same answer by using joint production possibilities and equating MRT to MRS.
Akash
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Apr 20, 2016; 1:06pm
Re: International Trade
70 posts
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by Dr. Strange
L_1A=10, L_2A=20
L_1B=20 L_2B=50
So B should produce solely 1 (20,0) and A will produce a combination (x_1,x_2) and demand (x_1d,x_2d)
U=x_1d*x_2d
MRS= -(x_2d/x_1d)
MRT=-1/2
for equilibrium MRS=MRT=price ratio (p)
So p= 1/2
Now for CD utility;
x_1d=m/2p and x_2=m/2 ; where m=p*x_1+x_2
y1_d=10 and y_d=5 (because we know their endowment and demand and prices)
Satisfy demand/supply equations for 1 and 2 each
We get (x_1,x_2)=(2,11) and (x_1d,x_2d)=(12,6)
Dr. Strange
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Apr 20, 2016; 4:57pm
Re: International Trade
148 posts
Thanks a lot guys. It was very helpful.
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