Suppose two countries can produce and trade two goods - food (F) and cloth (C). Production technologies for the two industries are given below and are identical across countries: 1 QF KEL 2 Qc K&LO where Q denotes output and K, and L, are the amount of capital and labor used in the production of good i. Suppose the SS curve is given by the following function: PF 호 = Pc Also assume that the relative price of food is equal to one. c. Now we add information on factor endowment. Suppose a country has K = 90 units of capital and I = 60 units of labor and the following full employment conditions are satisfied: KF+ Kc = K LF + Lc = I Find equilibrium allocation of resources across industries and output of each good.
