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A nation has a fixed amount of Capital and Labor (K*, L*) which lies on aggregate isoquant when all inputs are being used efficiently. The input prices wages (w) and rental rate of capital (r) adjust so that all factors of production are utilized.
There is a change in technology that makes labor more productive.
Question: How is the isoquant for (K*, L*) different after the change in technology?Is because there was a technological change the country is able to produce more which shifts the isoquant line to the right correct?
Question: Determine what will happen to the input prices wages (w) and rental rate of capital (r) after this change in technology?
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