Consider the two-country model of Section 8.3. Suppose that
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Consider the two-country model of Section 8.3. Suppose that the cost-of-copying function is: mc = mi a AA1 2 b -b, where
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Consider the two-country model of Section 8.3. Suppose that the cost-of-copying function is: mc = mi a AA1 2 b -b, where 0 < b < 1. Assume that the two countries have labor forces of equal size. a. Using this function, solve for the steady-state ratio of technology in the leading country to technology in the follower country (i.e., A1/A2) as a function of the values of gA in the two countries. Show how this depends on the value of b, and explain what is going on. b. Assume that b = 1/3, mi = 10, gA,1 = 0.3, and gA,2 = 0.1. Calculate the steady-state ratio of technology in Country 1 to technology in Country 2.
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