What would happen to the capital-labor ratio in production


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?

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International Economics: What would happen to the capital-labor ratio in production
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