GLOBE

Immobile Factors: Production Assumptions

by Steven Suranovic ©1997-2004

Trade 70-11b  

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The 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
US France

where

= 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)

and where all starred variables are defined in the same way but refer to the production process in France.

Production of Wine
US France

where

= 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)

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.


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International Trade Theory and Policy Lecture Notes: ©1997-2004 Steven M. Suranovic
Last Updated on 9/16/99