Consider the economy of Cuba in which only two industries exist: energy and sugar production. There are three factors of production: capital, land and labor. Assume that labour is the mobile factor and can move within the two industries, while land is specific factor to sugar production and capital is specific factor to energy production. Apply the specific-factor model to answer questions (a) (a) Cuba has been under the trade embargo from U.S for more than 60 years. The embargo has significantly restricted its trade and FDI. Assume first that there is no trade taking place with foreign country (Autarky), and assume further that the wages in energy production industry and sugar are identical.

Graph the situation for Cuba, showing the country's wage and labor allocation between the two industries. Discuss the graph and its implications for the economy of Cuba.