Question

2. Shipping containers (used to load cargo on ships) can be made in either China or the Unites States, differ. Consider the two production isoquants in the figure below. Each represents either ut because labor in the United States is more skilled, on average, than labor in China, the production the production technology for the U.S.or for China. Based on the MRTS, which production isoquant more likely to represent the United States and which represents China? Explain! Capital1t 0-1,000 (Country B) 0-1,000 Country A) Labor (L)

Answer 1

At a point where both countries isoquant cross, both countries use same amount of labor and capital.

Assume there is decrease in capital by a fixed amount, in that case to stay on same isoquant the steeper isoquant indicate there is less decrease in labor than flatter isoquant.

It means country A (steeper isoquant) uses less labor.

And, country B (flatter isoquant) uses more labor.

Thus, country A is United States and country B is China.