wage wage W PCMPLC PAMPLF Lo - + LF total labor supply Figure 1 the power rule of differentiation, it yields MPLc = dec/dbc = 3 L -2/3. What is the relationship between MPLc and Lo? What can you say about the opportunity cost of labor in clothing production? (1 point) b. Sketch a PPF which satisfies the above relationship between MPLo and Lo. (2 points) c. As shown in Figure 1, the wage level in Home is determined by the intersection of two labor demand curves. Show graphically how labor allocation and output mix respond to an increase in capital stock? (2) Now suppose there is another country, Foreign, which has a larger supply of clothing than Home. Home and Foreign open up to free trade. (1 point) a. Describe the trade pattern between Home and Foreign. (1 point) b. What is the effect of trade on Home's relative price of clothing? (2 points) c. Show graphically how labor allocation and wage respond to free trade in Home. (2 points) d. Describe the income effects of trade in this example (Who will gain and who will lose?)