Consider two countries, Mytown and Yourtown. Two goods are produced: mobile phones and cham-

pagne. In Mytown the unit labour requirements for mobile phones and champagne are 20 units and 10 units

for respectively. In Yourtown the unit labour requirements for mobile phones and champagne 10 and 50 units

respectively. Mytown has a labor force of 200 units while Yourtown has a labor force equal to 100 units. Assume

that both countries have the same utility function U(CM,CC) = CC^1/2 * CM^1/2, where CM represents the quantity MC

consumed of mobile phones, and CC the consumption of champagne.

1. a)Find the equation that represents the production possibility frontier (PPF) of Mytown and YourTown. Find the autarchy prices of Yourtown and Mytown.
2. b)The economy opens to international trade. Graph the world relative supply curve, the world relative demand, and find the equilibrium price.
3. c)Find production, consumption, exports and imports from Yourtown. Do both countries benefit from inter- national trade? Explain