Consider two regions, Montral area and Qubec City area. A firm produces composite goods according to the input re- quirement 1-F + kc, (2) where I is the number of workers required to produce c bas- kets of composite goods. F and k are positive constants. Demand for goods is C/2 in each region, where C is a positive constant. This is a very baby version of NEG and lacks lots of features that full-blown NEG models entail. It helps you see the essential trade-off at the core of the NEG model nonetheless, 10 1. Which returns to scale does (2) exhibit? 2. Let T(21) be the iceberg transportation parameter. If the firm is located in Montral, how many workers do they need to employ to meet the demand in both regions? 3. What is the smallest value of T above which the firm is better off splitting its production in two regions to minimize the total number of workers required in order to meet the demand in both regions? 4 Suppose that I falls below the value found in item 3. In this case, we will have a city. Which one of the as- sumptions in Starrett's theorem does this case violate? 5. Explain how and why T dictates the nature of agglomeration, i.e., there is a city in some range of T and none in some other range.