In the context of an Edgeworth production box the production-contract curve is made up of the points of tangeney between the isoquants of the tw production processes A change from a constant-returns-to-scale production process to a sharply-increasing-returns-to-scale production prooess does not necessarily imply a change in the shape of the isoquants. One can simply redefine the quantities associated with each isoquant such that proportional increases in inputs yiel greater-than-proportional increases in outputs. Under this assumption,the marginal rate of technical substitution would not change.Thus,there would be no change in the production-contract curve. however. accompanving this change to sharply-increasing-returns-to-scale technology,there were a change in the trade-off between the two inputs(a change in the shape of the isoquanta) then the production-ontract curve woul chang For example,if th orignal produetion function wereIwithMRTSK the shape of the isoquants woul not change if the new production function wereQ= LK2 with MRTS=K but the shape would change if the new production functionwL with RTS2) Note that in this case the production possibilities frontier is likely to become convex 11.Suppose that country A and country B both produce wine and cheese. Country A has 800 units of available labor,while country B has 600 units.Prior to trade.country a consumes 40 pounds of cheese and 8 bottles of wine.and country B consumes 30 pounds of cheese and 10 bottles of wine Country A Country B labor per pound cheese 10 10 labor per bottle wine 50 30 Which country has a mparative advantage in the production of each good?Explain To produceanother bottle of wine,Country A needs 50 unitsof labor,and must therefore produce five fewer units of cheese.The opportunity cost of a bottle of wine is five poundsof cheese.For Country B the opportunity cost ofa botle of wine is three poundsof cheese.Since Country B hasa lower opportunity cost,they should produceIn the context of an Edgeworth production box, the production-contract curve is made up of the points of tangency between the isoquants of the two production processes. A change from a constant-returns-to-scale production process to a sharply-increasing-returns-to-scale production process does not necessarily imply a change in the shape of the isoquants. One can simply redefine the quantities associated with each isoquant such that proportional increases in inputs yield greater-than-proportional increases in outputs. Under this assumption, the marginal rate of technical substitution would not change. Thus, there would be no change in the production-contract curve. If, however, accompanying this change to a sharply-increasing-returns-to-scale technology, there were a change in the trade-off between the two inputs (a change in the shape of the isoquants), then the production-contract curve would change. For example, if the original production function were Q = LK with MRTS K L = , the shape of the isoquants would not change if the new production function were Q = L 2K 2 with MRTS K L = , but the shape would change if the new production function were Q = L 2K with MRTS = 2 K L     . Note that in this case the production possibilities frontier is likely to become convex. 11. Suppose that country A and country B both produce wine and cheese. Country A has 800 units of available labor, while country B has 600 units. Prior to trade, country A consumes 40 pounds of cheese and 8 bottles of wine, and country B consumes 30 pounds of cheese and 10 bottles of wine. Country A Country B labor per pound cheese 10 10 labor per bottle wine 50 30 a. Which country has a comparative advantage in the production of each good? Explain. To produce another bottle of wine, Country A needs 50 units of labor, and must therefore produce five fewer units of cheese. The opportunity cost of a bottle of wine is five pounds of cheese. For Country B the opportunity cost of a bottle of wine is three pounds of cheese. Since Country B has a lower opportunity cost, they should produce