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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 9 1 good 2 4 12 Home is endowed with 530 units of capital and 700 units of labor available, whereas Foreign is endowed with 710 units of capital and 720 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. Indicate the range of relative prices of good 1 (relative to good 2) at which each country is willing to produce both goods. Enter the HIGHEST relative price of good 1 at which the Foreign country is willing to produce both goods (with two decimal digits)
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