lec09-eco101-11

lec09-eco101-11 - InternationalTrade Lecture9 c ⃝...

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Unformatted text preview: InternationalTrade Lecture9 c ⃝ Marc-AndreasMuendler UniversityofCalifornia,SanDiego October25,2011 9.ImperfectCompetitionandMarketSegmentation Econ101, c ⃝ M.Muendler ClassicTradeversusIntra-industryTrade • Perfectcompetitiondoesnotprevailinpractice.Itcanbecausedby marketimperfectionsoreconomiesofscale • Scaleeconomiesandincreasingreturnsinproductionconstitutea furtherreasonfortrade:Firmscentralizeproductionandexport • External economiesofscaleandexternalitiesconstituteareasonto restricttrade:Infantindustriesmaydeserveprotection • Imperfectcompetitionisnecessarytorewardinnovatorsandthere- forecloselytiedto endogenous growth 9.ImperfectCompetitionandMarketSegmentation Econ101, c ⃝ M.Muendler InternalEconomiesofScale • ClassicTradeTheory:ConstantReturnstoScale • IncreasingReturnstoScale.Synonym: Internal EconomiesofScale – When all factorsusedinproductionareincreasedby b percent, outputgrowsby more than b percent – Whenoutputisincreasedby B percent,totalcostsgrowby less than B percent(averagecostsdecline) • Productionismoreefficientatlargerscale 9.ImperfectCompetitionandMarketSegmentation Econ101, c ⃝ M.Muendler ConstantReturnstoScale Capital Labor Output Capital Functionalform: Y = L α K 1- α (for α = 1 / 2 ) 9.ImperfectCompetitionandMarketSegmentation Econ101, c ⃝ M.Muendler ConventionalIncreasingReturnstoScale Capital Labor Output Capital Functionalform: Y = L α K β (for α = β =1 . 4 ) 9.ImperfectCompetitionandMarketSegmentation Econ101, c ⃝ M.Muendler IncreasingReturnstoScalefromFixedCosts Capital Labor Output Capital Functionalform: Y = L α K 1- α- F (for α = 1 / 2 and F =2 , 000 ) 9.ImperfectCompetitionandMarketSegmentation Econ101, c ⃝ M.Muendler AverageCostandReturnstoScale • Increasingreturnstoscaleareequivalenttodecreasingaveragecost • Constantreturnstoscaleareequivalenttoconstantaveragecost • Decreasingreturnstoscaleareequivalenttoincreasingaveragecost • Example. Ifthereisafixedcost,doublingallinputsresultsinmore thanadoublingofoutputbecausethefixedcostonlyneedstobe paidonce.So,averagecostsdecreaseandreturnstoscaleincrease 9.ImperfectCompetitionandMarketSegmentation9....
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This note was uploaded on 01/30/2012 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.

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lec09-eco101-11 - InternationalTrade Lecture9 c ⃝...

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