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Suppose Flatland and Mountainland both only produce bikes and ropes for climbing. Precisely their production possibilities are characterized by the following table (which assumes that both countries use all of their 10 workers in the two production processes): A. [5 points] How would you describe the marginal returns of producing ropes and bikes in flatland? Are they decreasing or increasing as more workers are assigned to their production? Why would that occur? B. [5 points] Draw the PPFs of the two countries on the same graph (approximately). C. 5 points] Suppose each country is producing using 4 workers in bikes production and 6 workers in ropes production. What are their marginal cost of allocating 2 more workers to bikes? For who is the marginal cost larger? D. [5 points] Suppose the two counulis are in autarky, i.e, they don't trade with each other. How many workers should they allocate to the production of the two goods? E. [5 points] Now suppose they open up to trade. How many workers should they allocate to the production of the two goods now? Is there specialization? (Hint: Consider your response to C at F all levels of the PPF). What is the equilibrium production of bikes and ropes in each country? A. [5 points] What would be the allocatively efficient trade outcome if citizens in both countries like bikes and ropes equally? Would this allocation have been attainable without trade

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