Question 2 (30 points) There are two countries, Brazil (BRA) and Argentina (ARG), and two goods, 1 and 2. House- holds in each country have identical preferences over consumption of the two goods, given by: U ( C1 , C2 ) = log Ci + 3 log C2 The production technology available for producing good i E {1, 2} is the same in each country and is given by: X; = min where XS, HE, and Lf denote output, skilled labor input, and unskilled labor input in sector i and country c respectively. Country c E {BRA, ARG} is also endowed with HC units of skilled labor and Lc units of unskilled labor. Both factors are perfectly mobile across sectors. In what follows, assume that factor endowments are: HBRA = 6 IBRA = 8 HARG = 2 LARG = 4 Assume also that all the parameters of the production functions are known, except for bL2: bH1 = 4 bL1 = 2 bH2 = 1 bL2 = ? (a) Suppose that there is free trade between Brazil and Argentina for both goods. What is the relative output of sector 2 in Brazil versus Argentina (i.e. what is XPRA / XARG)? (15 points) (b) Suppose that under free trade, the world relative price of good 1 to good 2 (i.e. p, /P2 ) is equal to 3. What is the unit requirement of unskilled labor in sector 2, bL2? (15 points)