Assume that Mexico receives an inflow of FDI. Suppose two factors (labor and capital) are used in the production in two industries (food and televisions). Further assume that televisions are capital-intensive, as compared with food. Use the long-run specific-factors model to answer the following questions.

a. Show the impact of the inflow of FDI on Mexico in an illustration similar to Figure 5.13, with the output of food (televisions) on the vertical (horizontal) axis. What happens to the output of each good?

b. How has wage changed in terms of food and televisions?

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Output of food, QF Mexico PPF Relative price of televisions, PTV/PF Shift in Mexico PPF due to FDI Output of televisions, QTV