Consider a resource-based economy which can allocate labor (L) to harvest timber (T) or fish (F). Assume the economy faces constant world prices for timber and fish, denoted Pt and Pf, respectively. Labor is constrained by the following equation: L=T^2+(F^2/2). Further, suppose Pt= $500/ton and Pf=$100/ton and L= 1700 available hours.
How should labor be allocated to timber and fish production to maximize the one- period value (V) of resource production? (Note: PtT+PfF ).
What is the marginal value (shadow price) of an additional unit of labor?