1. Suppose India produces two types of goods: C and S. Kc and Lc are the amounts of capital and labor

employed in C production. Similarly, Ks and Ls are the amounts of capital and labor employed in S production. The total supply of capital and labor in India is K and L respectively.

(a) Using the above information derive step-by-step equation.

Now suppose we collected data from India and find out that C use 2 units of capital for each worker, so that Kc= 2 * Lc, while S use 0.5 units of capital for each worker, so that Ks= 0.5 * LS. There are 100 units of capital and 100 units of labor in the economy.

(b) Solve for the amount of labor and capital used in each production.

(C) Suppose amount of capital increases to 125 due to FDI, keeping the total number of workers fixed at 100.

Solve for the amount of labor and capital used in each industry.

(d) Suppose Pc/ Ps is constant. Use the equation of part (a) to analyze this effect of this K increase on the

movement of L and K across C and S industry. You don't have to use the numbers given for part (b) and (c).

(e) Use appropriate PPF diagram to describe your answer in part (d)