Question

6. A country ABC produces two goods: apples and jeans. The production of both goods requires the use of both labour and capital. payments to labour are $100,000 and payments to capital are $80,000. In jeans production payments to labour are $125,000 and payments to capital are $90,000. Using this information, identify which good is intensive in capital in production, and which is intensive a. In apple production, in labour in production b. The country now enters into trade with another country, XYZ. The two countries differ in their relative endowments of capital and labour suci that (K/L)ABC> (K/L)xrz. Assume the long run such that factor returns (w & r) are equal in both sectors. Using a diagram, illustrate the impact on relative factor returns-w/rorr/w-in country ABC and show the changes in the intensity of the use of each factor K and L in each goods-producing industry (apples and jeans) in country ABC. No numerical solution required. Ilustrate changes on the graph. Make sure the graph is fully labeled and all changes due to trade are explicitly identified. Desktop A acer