International Trade Theory and Policy
by Steven M. Suranovic
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Trade 70-11B
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Immobile Factors: Production AssumptionsThe production functions below represent industry production not firm production. The industry consists of many small firms in light of the assumption of perfect competition.
Production of Cheese
where
and where all starred variables are defined in the same way but refer to the production process in France. Production of Wine
where
and where all starred variables are defined in the same way but refer to the production process in France. The unit-labor requirements define the technology of production in two countries. Differences in these labor costs across countries represent differences in technology. International Trade Theory and Policy - Chapter 70-11B: Last Updated on 9/16/99
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= quantity of cheese produced in the U.S.
= fixed amount of labor applied to cheese production in the U.S.
= unit-labor requirement in cheese production in the U.S. ( hours of labor necessary to produce one unit of cheese)
= quantity of wine produced in the U.S.
= amount of labor applied to wine production in the U.S.
= unit-labor requirement in wine production in the U.S. ( hours of labor necessary to produce one unit of wine)
