Assume the following endowments of capital and labor for France and Germany: France Germany Capital 50...
- Assume the following endowments of capital and labor for France and Germany:
|
France |
Germany |
|
|
Capital |
50 |
20 |
|
Labor |
150 |
100 |
Both countries have the option to produce either computers or textiles. Computers are capital intensive, while textiles are labor-intensive. Which country will produce computers, and which will produce textiles? Why?
Homework Answers
labor capital ratio in France= 150/50= 3
Labor capital ratio in Germany = 100/20= 5
Since labor capital ratio is higher in Germany, Germany should produce labor intensive good.
Thus Germany should produce Textiles and France should produce computers.
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