ECON 441 Midterm: Exam 2 Summer 2002 Solutions
Document Summary
The questions are worth a total of 60 points, as indicated. To assist you, i have drawn two straight lines tangent to pairs of the isoquants, showing the points of tangency as open dots, and also drawing the rays from the origin through these points of tangency. Factor endowments are shown for seven countries, represented by the solid dots labeled. Country 2 has the largest capital stock, k2. Country 7 has the largest labor force, l7. Country 1 has the largest capital-labor ratio, k1 = k1/l1 (since it is to the left of the steepest ray drawn, and all other countries are to the right of that). Countries 6 and 7 both have the highest rental price of capital, r6=r7. Country 1 has the lowest rental price of capital, r1. Only country 7 produces good 1 at all, so it must produce the most. (it employs the vector of factors.
