Question 2 (25 Points). Trade: The tables below desoribe two differ ent cases of production costs for pharmaceutical products and machinery in Switzerland and Italy. The numbers in the table indicate the number of workers required for a unit of production. The variable w is the wage in Switzerland relative to Italy. For instance, w = 1 means that the wage is identical in both countries while to = 1.5 means that the wage in Switzerland is 50% higher. Case 1: Cost of Making a Unit of a Good Pharmaceutical products Machinery Switzerland 4 a: w 8 * to Italy 19 10 Case 2: Cost of Making a Unit of a Good Pharmaceutical products Machinery Switzerland 8 a: w 4 =0: 10 Italy 19 10 o For each case, show which products one should expect to be produced in Switzerland and which products one should expect to be produced in Italy (both countries will export part of their produced goods to the other country). Use the concept of comparative advantage. 0 For each case, determine the possible range of w in a trade equilibrium, that is, the range of to such that each country produces exactly one of the goods, and each good is produced in the country which has a lower production cost for it. (Note: to pin down the exact wage to, we would also need to know the labor supply, but this is not required here.) 0 In which of the two cases would you expect larger gains from trade