Industria and Agraria are two neighboring countries. Suppose Good X is the only good produced in both the countries and is a function of physical capital and efficiency units of labor

It is found that a one unit increase in capital leads to a higher increase in the production of Good X in Agraria than in Industria. What is the reason behind this if the number of efficiency units of labor in both the countries are equal?

If the number of efficiency units of labor is constant, an increase in capital stock leads to an increase in output. However, the increase in output is higher if less capital is used in production. Thus, a one unit increase in capital causes a higher increase in output if the capital stock is lower. This implies that the capital stock in Agraria is lower than the capital stock in Industria.