Suppose that two goods are produced: pianos and couches. Pianos use 0.5 units of capital per worker, so that [tex]\frac{K_P}{L_P} = 0.5[/tex], whereas couches use 3 units of capital for each worker, so that [tex]\frac{K_C}{L_C} = 3[/tex].

There are 200 workers and 200 units of capital in the economy. There is full employment, and all factors are mobile across sectors.

a. Which industry is capital intensive and which is labor intensive?

Question

High School

We appreciate your visit to Suppose that two goods are produced pianos and couches Pianos use 0 5 units of capital per worker so that tex frac K P L. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!

Answer :

JackHughes45 JackHughes45 · Answer 1 · 2023-10-15T10:08:00-04:00

The couch industry is capital intensive as it uses more capital per worker (Kc/Lc = 3) compared to the piano industry.

To determine which industry is capital-intensive and which is labor-intensive, we compare the capital-to-labor ratios given for each industry.

For pianos: [tex]\[ \frac{L_P}{K_P} = 0.5 \][/tex]

For couches: [tex]\[ \frac{L_C}{K_C} = 3 \][/tex]

Comparing these ratios:

Interpretation:

An industry is considered capital-intensive if it requires more capital relative to labor for production.
An industry is considered labor-intensive if it requires more labor relative to capital for production.

Given the ratios:

Pianos [tex]\[ \frac{L_P}{K_P} = 0.5 \][/tex] require less capital per worker compared to couches [tex]\[ \frac{L_C}{K_C} = 3 \][/tex]
Therefore, couches are capital-intensive because they require a higher ratio of capital to labor (3>0.5).
Conversely, pianos are labor-intensive because they require a lower ratio of capital to labor (0.5<3).

Thus,