Two sectors exhibiting constant returns to scale technology

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Consider again the case analyzed in class with two sectors exhibiting constant returns to scale technology (sector A is capital intensive and sector T is labor intensive). Suppose there is a neutral technological change in sector T only (no technological change in sector A). A neutral technological change is one that increases the productivity of K and L without changing the trade o between capital and labor (i.e. it increases the production value associated with each isoquant without modifying their shape). Derive the production possibility frontier before and after the technological change and the autarkic equilibrium before and after the technological change. Will pA=pT in autarky be higher, lower, or the same after the technological change as compared to the situation without the technological change? Explain your answer.

Reference no: EM13860600

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