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Consider two countries, Home and Foreign, both of which are able to produce two goods: good 1 and good 2, using the same technologies. The
Consider two countries, Home and Foreign, both of which are able to produce two goods: good 1 and good 2, using the same technologies. The production of both goods uses capital and labor in fixed proportions. In particular, the units of each input needed to produce one unit of output are given by: capital labor good 1 3 11 good 2 10 2 Home is endowed with 1,000 units of capital and 510 units of labor available, whereas Foreign is endowed with 550 units of capital and 850 units of labor. Consumers like to consume both goods and have the same preferences in both countries. Assume that the relative demand for good 1 takes the form: D1/D2 = 1/(P1/P2) Assume that the countries are closed to trade. Construct the PPF for both countries, and plot them in the same graph (put good 1 in the x-axis). Enter the x-intercept for Home's PPF (with two decimal digits)
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