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H-O model

# H-O model - Heckscher-Ohlin Model Country Alpha and Beta...

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Country Alpha and Beta are producing two goods, candy (C) and flower (F) using two inputs land (T) and labor (L). The price for land (r) equals \$10/acre, the price of labor (w) equals \$8/hour. a) Define Iso-Cost Line. Put labor on the horizontal axis and land on the vertical axis. Draw the iso-cost line for candy industry with a cost level of \$10 on one graph and draw the iso-cost line for flower industry with a cost level of \$20 on another graph. Label all the intercepts and slopes of the iso-cost lines. b) Define Iso-Quant Curve. Suppose the lowest cost of producing one unit of candy is \$10, the lowest cost of producing one unit of flower is \$20, draw the Iso-Quant curve for Q F =1 and Q C =1 on the graphs you drew in part a). c) Define “factor use ray”. Draw the factor use rays on the graphs you drew for part a) and part b). d) Suppose the price for candy is \$2, draw the \$1 worth iso-cost line on the graph you drew for candy industry in part a), b) and c). How much is the maximum quantity under \$1 cost? Draw the iso-quant curve on the same graph of this
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