Figure 11-14

Figure 11-14 shows the optimal input combinations for the production of a given quantity of cotton in the United States and in China.
-Refer to Figure 11-14.Consider the following statements:
A.For each country, the marginal product per dollar spent on labor equals to the marginal product per dollar spent on capital.
B.The price of labor is relatively higher in the United States than in China and the price of capital is relatively lower in the United States than in China.
C.The price of labor and the price of capital are relatively higher in the United States than in China.
Based on the figure, which of the statements above is true?
A)All of the statements are true.
B)statements a and c only
C)statements a and b only
D)statements b and c only

Question

Figure 11-14
  
Figure 11-14 shows the optimal input combinations for the production of a given quantity of cotton in the United States and in China.
-Refer to Figure 11-14.Consider the following statements:
A.For each country, the marginal product per dollar spent on labor equals to the marginal product per dollar spent on capital.
B.The price of labor is relatively higher in the United States than in China and the price of capital is relatively lower in the United States than in China.
C.The price of labor and the price of capital are relatively higher in the United States than in China.
Based on the figure, which of the statements above is true?
A)All of the statements are true. 
B)statements a and c only 
C)statements a and b only 
D)statements b and c only

Quizplus · Accepted Answer

From the figure, it can be observed that for both countries, the isoquant curves are linear, implying that the marginal product per dollar spent on labor equals the marginal product per dollar spent on capital (Statement A is true). However, it can also be observed that the United States is using relatively more capital and less labor than China to produce the same amount of cotton, which implies that the price of labor is relatively higher in the United States than in China and the price of capital is relatively lower in the United States than in China (Statement B is true). Therefore, Statement C is false, and the correct choice is C.

Figure 11-14 Figure 11-14 Shows the Optimal Input Combinations for the Production