Question
Consider a Specific Factors Model. Suppose that the home country produces only two goods, food and cloth. Labor is the mobile factor of production, that
Consider a Specific Factors Model. Suppose that the home country produces only two goods, food and cloth. Labor is the mobile factor of production, that can move freely between the two sectors at Home. Land is a factor of production that is specific to food production, and capital is a factor of production that is specific to cloth production.Let the autarkic relative price of cloth to food at Home be (PC/PF)1. Suppose that the home country wants to maximize the value of its production subject to the PPF. Show the autarkic optimal production point for Home in a graph containing the PPF.
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