a) Food and cloth are both produced in Home and Foreign. Determine the equilibrium price of Capital (C) and [Lad (D) if it takes 3 units of Capital (C) and 4 units of [Lnd (D) to produce 1 unit of Cloth (E) in Foreign (A). Assume it takes 2 units of Capital (C) and 1 unit of Land (D) to produce 1 unit of the other good, Food, in Home (the country other than A). Let Home and Foreign trade with one another. Let the equilibrium world price of Cloth (E) be 30 and the price of the other good, Food, be 15. Determine factor prices assuming competitive markets. (Obviously show your work!) Prices and factor prices are equalized through trade. The assumption of zero economic prots means that the expenditure on inputs equal the price of each good. We have two equations (let r equal the rental rate of land and s equal the price of capital) PC = 30 = 4r + 3s PF = 15= 1r + 2s Solving, we nd that Price of Capital (C) = 9 Price of Land (D) = g