Question 2: Consider a country producing milk and cookies using labor and capital as inputs described...

 

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Question 2: Consider a country producing milk and cookies using labor and capital as inputs described by a Heckscher-Ohlin model. The following table provides outputs for goods and factor endowments before and after a change in the endowments. Output and Endowments Initial Milk Output, QM Cookie Output, Qc Labor Endowment, L Capital Endowment, K 100 gallons 100 pounds 4000 hours 1000 hours After Endowment Change 110 gallons 80 pounds 4200 hours 1000 hours a) Calculate and rank the magnification effect for quantities in response to the endowment change. Which product is capital intensive? Show why. b) c) Which product is labor intensive? Show why. Question 2: Consider a country producing milk and cookies using labor and capital as inputs described by a Heckscher-Ohlin model. The following table provides outputs for goods and factor endowments before and after a change in the endowments. Output and Endowments Initial Milk Output, QM Cookie Output, Qc Labor Endowment, L Capital Endowment, K 100 gallons 100 pounds 4000 hours 1000 hours After Endowment Change 110 gallons 80 pounds 4200 hours 1000 hours a) Calculate and rank the magnification effect for quantities in response to the endowment change. Which product is capital intensive? Show why. b) c) Which product is labor intensive? Show why.

Answer rating: 100% (QA)

a The magnification effect measures the change in output for a given change in factor endowments It is calculated as the percentage change in output d... View the full answer