Consider a country in which there are two sectors, called Se
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Consider a country in which there are two sectors, called Sector 1 and Sector 2. The production functions in the two sec
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Consider a country in which there are two sectors, called Sector 1 and Sector 2. The production functions in the two sectors are: Y1 = L1 1/2 Y2 = L2 1/2 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 L. 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. Calculate how many workers will work in each sector.
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