Assume that the initial equilibrium in a labor allocation diagram is given as it is shown in the figure below. It differs from the standard Specific Factors Model in that the marginal product of labor in the Y-industry is assumed to drop to zero at a certain industry size. As you can see in the figure, the initial production equilibrium is determined at this certain industry size.

Assume that the initial equilibrium in a labor allocation diagram is given as it is shown in the figure below. It differs from the standard Specific Factors Model in that the marginal product of labor in the Y-industry is assumed to drop to zero at a certain industry size. As you can see in the figure, the initial production equilibrium is determined at this certain industry size.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.9P

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