Question

Please I need today answer for This question and it is very important and I need solution for this issue with all the details , and help me with all the details.Please write your answer to me by typning  not by hand writing, so that I can read and understand your answer clearly.thanks in advance/Ha

Question 1

Economies of scale change the conclusions from some of the traditional trade models and can be used to understand phenomena such as intraindustry trade, cluster formation and economic geography.

a) Use the monopolistic competition model with internal economies of scale to analyse the effect of trade liberalisation (between two identical countries) in the car sector, assuming that this sector is characterised by internal economies of scale (due to fixed costs) and product differentiation. How and why does welfare change? What can we say about the location of firms?

b) If you would instead look at the watch industry and assume that this industry is characterised by external economies of scale and technological spillovers between firms, what would the effect of trade liberalisation on welfare be (use the external economy model)? What can we say about the location of firms?

Question 2 (foreign investment)

If there are internal economies of scale, why would it ever make sense for a firm to produce the same good in more than one production facility?

Question 3

Consider the model where firms have different levels of marginal cost ( “Firm Responses to Trade: Winners, Losers, and Industry Performance”).Explain why trade liberalisation has the same effect on an economy as an increase in the aggregate productivity of an economy (i.e. that the average output per worker increases).

Answer 1

Question 1 : Economies of scale change the conclusions from some of the traditional trade models and can be used to understand phenomena such as intraindustry trade, cluster formation and economic geography.

a) Use the monopolistic competition model with internal economies of scale to analyse the effect of trade liberalisation (between two identical countries) in the car sector, assuming that this sector is characterised by internal economies of scale (due to fixed costs) and product differentiation. How and why does welfare change? What can we say about the location of firms?

Answer

In the monoplistic model as we know the market is imperfect and a cluster formation is there which make the industry or the trade competitive and among this , the best prduction industry with high quality and cheapeast cost will survive and will have the edge over other industries or the trade . Now when we talk about the internal scale of economy we know that internal factors governed the production scale of the organization like its manpower , machinery , equipments , business strategy , Research and development , customer relationship with the sales etc. So In a monopolistic model with internal economies of scale , the trade liberalisation is free exchange of good among nation or barrier free trade between two countires having identical product of trade.In Automobile sector if the trade liberalisation is there under monopolistic model based on iternal economic scale with have downfall of trade in both of these countries .Because the trade is free to exchange and both the sector are product are identical that is Car so here the product differentiation is the main key role need to be analysed by the industries producing car .If both the product are same then there will be less demand of the product and supply will be more which will make the trade economy to drive down from equilibrium . So the product differentiation should be significant to make the trade competitive and survived in market as the market is already monopolistic or imperfect. Besides this the location of the firm is not a big issue than the product differentiation .The location of the firm is an internal scale of economies and it  play big in the trade when there is supply is equal to the demand or in perfect competitive market when equilibrium is achieved .The wlefare is the well being of overall stuffs like people , trade, economy , nation welness so the welfare will change according to the demand and supply of the product and how the product differentiation is being processed by the two countries in their trade .

b) If you would instead look at the watch industry and assume that this industry is characterised by external economies of scale and technological spillovers between firms, what would the effect of trade liberalisation on welfare be (use the external economy model)? What can we say about the location of firms?

Answer

The effect of trade liberalisation on the welfare in this case where the Watch industry is governed by the external scale of economies ( drop in average cost of product as the firm size or trade increases ) will be positive as two nation have free exchange /Trade between them and external economies scale will drive the trade to increase depending on the supply and the demand of the watches .The location of the firm will be where the Industries find least overall production cost of the product.It is allocated for profit maximizing where revenues earned is more than the production and distribution cost ( minimized ) .

HAVE A GOOD DAY !