Seminar one (solution for question 4)
Everything is the same as in question two except that now the two profit rates are not
restricted to be zero. But, they are equal. As before, CN =4/5 and MN=5/4. As a result,
equation (25) will be affected the same way as in question two. But, unlike in question two,
equation (26) will also change. The equations corresponding to equations (25) and (26) will
respectively be:
  wN  1
5

PM   M S     wN  1  PM 
5
4

 MS
4
N 
(252)
PM  vN wN
P v
 S  M S
cN
cS

( w  1)
P
5
PM  wN  M  1  PM  N
5 1
4
cS
(  )
4 cS
(262)
Using the expressions for PM in equations (252) and (262) we can solve for PM and WN.
If we want to express them interms of MS we have to get an expression for CS interms of
Ms. On the other hand, if we want to express the new price and wage interms of Ks we
have to express both MS and CS as functions of KS. In both cases we use the
relationships given by equations (1) and (4). Below, we have the expressions for the
new WN and MS as functions of MS. (check the direction of the effect on wN and PM )
wN 
25  5  20M S  4 M S
25  5  20M S  4 M S
PM 
40 
25  5  20 M S  4  M S
and