ABSTRACT
On/off inputs in a small open economy /HWXV¿UVWFRQVLGHUDVPDOORSHQHFRQRP\LQZKLFKWKHUHLVMXVWRQHLQGXVWU\ IRUPHG E\ LGHQWLFDO ¿UPV ZLWK FRQVWDQW UHWXUQV WR VFDOH ZKLFK SURGXFH D FRQVXPSWLRQJRRGE\PHDQVRIKRPRJHQHRXVODERXUDQGDPDFKLQH(DFK¿UP can choose between two qualitatively different machines, each of which can be imported at internationally given prices. We initially ignore the fact that each machine might be employed at different ‘labour intensities’ and just assume that one machine (of either kind) is operated by one unit of labour. We also assume, throughout this chapter, that the interest rate is identically zero.1
