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l. (40%) Consider a specicfactor model with two goods (Cloth & Food), and three production factors (L, K, and T). L is the mobile factor;
l. (40%) Consider a specicfactor model with two goods (Cloth & Food), and three production factors (L, K, and T). L is the mobile factor; K is the specic factor of Cloth; T is the specic factor of F. The production functions are: QC = 1/LCK and Q; = ,fLFT . The country's factor endowments are L = 40, K: 100, T: 225. (A) (10%) Derive the marginal product of labor (L) in the Cloth and Food sectors. Do the production functions exhibit diminishing returns? Explain. (B) ( 10%) Let PC = 1 and PF = 2. Find the optimal allocation of labor between the two sectors (LC and LF) and the output level of each sector (Qc and Qr). (C) (10%) Following part (B), nd the equilibrium wage of Labor. (D) ( 10%) Following parts (B) and (C), what is the total return paid to K owners? To T owners
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