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I need help with this exercise. Let me know if there is anything that need to be clarified. 2. Consider the specific-factors model (2 goods,

I need help with this exercise. Let me know if there is anything that need to be clarified.

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2. Consider the specific-factors model (2 goods, 3 factors, where labor is the flexible factor) for a with the following Cobb-Douglas production technologies: C (clothing) QF = Tl/2L12 (food) where L = Lc+ LFis the aggregate endowment of labor in each sector and K (capital) and T (land) are the specific factors in each sector _ (a) (c) (d) (e) (f) Assume that all consumers in the country have Leontief preferencesone unit of food must combined with exactly one unit of clothing. i. What do indifference curves look like for these consumers? ii_ What does the relative demand curve look like? What QV'QFwiII consumers choose given any pup'? What is the Marginal Rate of Transformation (MRT) between clothing and food in in this is, how many more units of food can be made in this economy if one less unit of clothing is made). Answer the following parts: i. What is the MRT in terms of the marginal product of labor in the food sector and the marginal product of labor in the clothing sector? ii_ Solve for the marginal product of labor in each sector to write the MRT in terms of K, What do get? At the output bundle of Qcand QF that maximizes national revenues, what relationship between pc/pp and the MRT must hold? Given what the MRT is in part what does this relationship mean Lc/LFhas to be given The production function C = means that that given the national endowment of K, to make QF = Tl/2Ll/2 Qcunits of clothing it takes Q2r/K units of labor. Similarly, the production function means that with a national endowment of T, to make QFunits of food it takes Q2F/Tunits of labor. Plug these expressions in for Lcand LFin your answer to athen re-arrange to show what the relative supply leve will be in terms of T and PF when the producer maximization condition holds. Using your relative supply and relate demand curves, what will the autarky relative pricepF be in terms of the relative endowment of the two factors K/T? Plot the relative demand and relative supply curve for this economy. Suppose that Home is endowed with 200 units of K and 100 units of T. Foreign is endowed with 300 units of K and 3000 units of T. Which good does Home have comparative advantage in? If the two countries open to trade, which good will Home export, and which good will Home import?

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