In the short run, Freedonia has 2 industries (computers, shoes), with 3 factors of production (labor, land, capital). Let the marginal product of labor in the computer industry be defined such that: MP Lc = 10L 1 2 c K. Likewise, let MP Ls = 10L 1 2 s T. Also, let the price of computers be 1 2 while the price of shoes is 1. If the equilibrium wage is 10, the total amount of land (T) is 10, and the labor used in the computer industry is 25.

(a) Assume that 25 unit of labor leave Freedonia. Likewise, land is destroyed in a hurricane. Only one unit of land remains. Finally, foreign countries begin investing into Freedonia which causes the total amount of capital to double. Find the labor in the shoe industry after these changes.

(b) In the long run, land is not used as a factor of production. Instead, both shoes and computers only use capital and labor. Is this a good assumption? Why or why not?

(c) In the long run, let the total amount of labor is equal to 100. The labor to capital ratio in the computer industry is 10/1. Finally, the amount of capital in the shoe industry is 3 and the amount of labor in the computer industry is 60. Assume no units of labor or capital are unused in equilibrium. Draw a box diagram showing the equilibrium amounts of capital and labor. Be sure to label the points with specific values.

(d) Assume 2 units of capital flow out of the country along with 10 units of labor. Find a possible new equilibrium Lc, Ls, Kc, Ks.