2 Heckscher-Ohlin (30 Points) Let's consider now a two countries ( H and F) two goods ( 1 and 2), two factors (K and L ) model of trade with constant return to scale and perfect competition. Demand is identical in the two countries. Cost minimization implies the following unit cost functions: 1 c1(w,r)=wa1L(w,r)+ra1K(w,r)c2(w,r)=wa2L(w,r)+ra2K(w,r) Zero Profit Conditions are p1=c1(w,r)p2=c2(w,r) The full utilization of resources implies: a1Ly1+a2Ly2=La1Ky1+a2Ky2=K 1. Use the zero profit conditions in the two industries to obtain a relation between r and w. Graph it in a (w,r) space under the assumption that good 1 is relatively intensive in labor. 2. State the Stolper-Samuleson theorem and show it graphically in a space (w,r) under the assumption that good 1 is relatively intensive in labor. . 3. Now suppose that country H is relatively abundant in its capital endowment compared to country F(KL