Question
. Consider Heckscher-Ohlin model in the usual setting with two goods (food and clothing) and two inputs (capital and labor). The production functions are given
. Consider Heckscher-Ohlin model in the usual setting with two goods (food and clothing) and two inputs (capital and labor). The production functions are given by QC = Lc^(2/3)*Kc^(1/3)and Qf = Lf^(1/3) *Kf^(2/3) . We have shown in class (see Zoom session recording from October 13) that given good prices pC and pF the factor prices are w = (4/27)^(1/3*(pc^2/pF)) and r = (4/27)^(1/3*( pf^2 /pC). Suppose the total capital stock in the country is given by L = 2000 and the total labor force by K = 3000. Given prices pC and pF, what is the production of cloth and food in the economy? What happens to the production of each good, if labor supply increases to 3000? Which theorem does this change conrm?
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