Question

Canada removed all duties and quotas on imports from Bangladesh in 2003. Since that time, Bangladesh

Answer 1

We have MPL = q = 0:3 * (K/L) 0.5 MPK= * = 0:5 * (LIK); OS At MPL - MPK = f ; the cost will be minimized Country-1: We have w= 10,000/2 = 5,000 and r= 20,000 K = 5,000 = 1 L 2,000 = L = 4K Putting values in production function: | K L = 1000 KOS(4K) ° = 1000 K= 500; L = 4 * 500 = 2000 Total cost (Tk) = WL + rK = [5,000 * 2,000 + 20,000 * 500] = 20,000,000 Country-2: We have w= 10,000 and r = 20,000 K/L = 10,000/20,000 = 1/2; or L = 2K Putting values in production function: KOSL0.5 = 1000 Kº5(2K) = 1000 1.41K = 1000 K= 707.10 L = 707.10 * 2 = 1414.21 Total cost (Tk) = WL + rK = [(10,000 * 1,414) + (20,000 * 707)] = 28,280,000 Because Tk 20,000,000 < Tk 28,280,000, thus the total production cost will be lower in country A.