16 Economies of Scale, Part 1

16 Economies of Scale, Part 1 - Economies of Scale, Part 1...

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1 1 Economies of Scale, Part 1 •In t rodu c t ion • Economies of Scale and Trade – Market Structure – Theory of Imperfect Competition • The Monopoly Firm – The Economics of Dumping – Reciprocal Dumping 2 Introduction • An analysis of trade based on economies of scale has issues that have been avoided so far. – So far, markets have been assumed to be perfectly competitive . – With economies of scale, markets are usually imperfectly competitive . 3 Introduction • There are 2 classes of models of international trade based on economies of scale : Internal economies of scale . External economies of scale . 4 Economies of Scale and Trade • Many industries are characterized by economies of scale so that production is more efficient the larger the its scale. – Economies of scale are also referred to as increasing returns .
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2 5 Economies of Scale and Trade Pre-Trade Labor Output Labor Output Cloth Food Post-Trade Cloth Food HOME FOREIGN 6 Economies of Scale and Trade • If there are many goods subject to economies of scale in production, each country must concentrate on producing only a limited number of goods . – International trade arises because consumers in both country still want to consume a variety of goods . 7 Economies of Scale and Trade • Mutually beneficial trade can arise as a result of economies of scale. – Each country specializes in producing a limited range of products . • This allows it to produce these goods at a larger, more efficient scale than if it tried to produce everything for itself.
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This note was uploaded on 02/25/2012 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at University of California, Berkeley.

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16 Economies of Scale, Part 1 - Economies of Scale, Part 1...

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