lec10-eco101-11

lec10-eco101-11 - InternationalTrade Lecture10 c...

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Unformatted text preview: InternationalTrade Lecture10 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego October27,2011 10.Intra-industryTrade Econ101, c M.Muendler TheIntra-industryTradeModel TheIntra-industryTradeModelfocusesontradeinvarietiesofthe samegoodandtakesapartialequilibriumperspective TheIntra-industryTradeModelrestsontwokeyrelationships Price-Variety(profitmaximizationpastentry, PP schedule) Average-cost-Variety(freeentryuntilprofitszero, CC schedule) Onceinthemarket,firmsmaximizetheirprofits.However,freeentry erodestheirprofitstozeroinequilibrium 10.Intra-industryTrade Econ101, c M.Muendler TheIntra-industryTradeModel Basicingredients(assumptions) Numberoffactorsofproduction:any,givingrisetoacostfunction Mobilityoffactorsofproduction:inthebackground Numberofindustries(goods):2(manufacturesandfood) Differentiatedvarietiesofmanufactures Imperfectcompetitionin manufactures (transportcosts ) Keyforce :Internalincreasingreturnstoscale 10.Intra-industryTrade Econ101, c M.Muendler DemandforEachVariety Q i = S [ 1 n- b ( P i- P ) ] Demand Q i foranindividualfirm i s variety dependsontotalsalesin themarket S ,thenumberoffirmsinthemarket n ,itsownprice P i andaveragemarketprice P . b isresponsivenessofquantitytoprice. Allfirmsfacethesameinversedemand: P d i = P + 1 b n- 1 b S Q i . Welookat symmetricequilibrium . Insymmetricequilibrium,...
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lec10-eco101-11 - InternationalTrade Lecture10 c...

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