Question: 3. (Full Ricardian Model: Basic (30 points)) Consider 2 countries, Holland and Sweden (H and S). The marginal productivityes of one year of labor in

3. (Full Ricardian Model: Basic (30 points)) Consider 2 countries, Holland and Sweden (H and S). The marginal productivityes of one year of labor in the industries Machinery (M) and Furniture (F) are given in the following table: Marginal Productivity of One Year of Labor Machinery (tons) Furniture (tons) Holland 3 3 Sweden 2 4 Each country has a population of 10 million people, all of whom provide one unit of Labor. a. Graph the PPFs for Holland and Sweden. Throughout the problem, put Machinery on the X-Axis. Furniture Furniture 20 millions machinery - machinery 30millions Holland PPI Sweden PPF As in lecture, assume that the national utility function is the same in each country and given by a Cobb-Douglas formula: U(M,F)=M /2p /2. This makes MUM 1 F2 2 T and MUF 1 MZ M 2 2 b. What is the formula for the Marginal Rate of Substitution? MU= du u(x1 + x1, X2) - u(x1, 22) dx1

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