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1. (Simplified version of Heckscher-Ohlin model). Consider a country which can produce two goods: manufactures (M) and food (F) using two inputs: labor (L) and capital (K). Production of each good requires inputs to be used in fixed proportions as follows (these are called Leontieftechnologies): To produce food (F): 2 units of labor and 6 units of capital are required for each unit of F. To produce manufactures (M): 6 units of labor and 2 unit of capital are required for each unit of M. Let L. K represent the total amount of labor and capital available in the economy, let Pf, Pm denote the prices of output and let W. R denote the prices of labor and capital respectively. a) Find production costs and hence output price (price-marginal cost) for each good in terms of factor prices (W . R) . {Hint: To produce Om units of Mrequires 60m workers and 20, units of capital, hence total costs are { WLm + RKmi-{6W+2 R} 0m }. i. Use your answers to solve for inputs prices in terms of output prices. How will an increase in the price of food affect factor prices