Assume a Ricardian model with two countries, Home and Foreign, that both produce cars and furniture. Home has 800 units of labor (L) available. Home's unit labor requirement in the production of cars is a_LC= 4, while in the production of furniture it is a_LF=10. Foreign has 400 units of labor (L*) available. Foreign's unit labor requirement in the production of cars is a_LC*=2, while in the production of furniture it is a_LF*= 8.

a) Homes's production possibility frontier (PPF) can be described by

QC=a?bQFQC=a?bQF

where Q_Cdenotes the output of cars and Q_Fdenotes the output of furniture.

Determine the values of a and b.

The value of a is:_____

The value of b is:_____

(Round your result to two decimal places if necessary.)

b) Assume Home wants to produce 100 cars. How much furniture can it produce?

If Home produces 100 cars, it can produce _____ units of furniture.

c) What are the opportunity costs of furniture in terms of cars in both countries?

Opportunity costs of furniture in terms of cars in Home are _____. (Round your result to two decimal places if necessary.)

Opportunity costs of furniture in terms of cars in Foreign are _____. (Round your result to two decimal places if necessary.)

For parts d), e), and f) assume there is free trade and the world price of cars is P^T_C=2, while the world price of furniture is P^T_F=6.

d) Which good will be exported by Foreign?

Foreign exports _____.

e) The following figure illustrates the world relative supply of furniture in terms of cars.

\fForeign QF Z Consumption possibilities with trade W PPF without trade Qc