Problem
1. Suppose that the country experiences an increase in its capital stock. How would the Edgeworth box change? How would the production-possibilities frontier change as a result? Could the country now obtain more of both goods than before the increase in capital stock or more of only the capital-intensive good? Explain.
2. Suppose that the price or rental rate of capital rises. Explain how producers would respond, using the isocost/isoquant framework. What would happen to the capital/labor ratio in production?