2. Suppose a small country produces product A and B with K and L. In free trade, it produces the quantities A0 and B0 as illustrated in Fig.1 by the two bold isoquants. We also know that it exports product B to the rest of the world.

(iii) Suppose there is a technological change in industry B such that both factors of pro- duction when employed in that industry are more productive. As a result, in order to produce the quantity B0 there is less need to use both K and L as illustrated in Fig 1 by the dotted isoquant labelled B0. What happens to the production possibility frontier in that country? Explain and illustrate.

K Bo Bo Ao L Figure 1 13