In: Economics
2. Consider the Krugman model whose equilibrium could be described by the intersection of PP (pricing rule) and ZZ (zero profit condition) schedules. How would the closed-economy equilibrium change if fixed costs were larger? Use the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per capita of a product, supply quantity of a product, price of a product relative to wage, and number of product varieties change. Provide intuition for your results.