6. Consider the pharmaceutical sector in the UK, populated by heterogeneous firms, which differ in labour...

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6. Consider the pharmaceutical sector in the UK, populated by heterogeneous firms, which differ in labour productivity, produce subject to increasing returns to scale, and sell under monopolistic competition. Serving the domestic market entails a fixed cost, fp, while exporting to France entails a variable cost T>1 and a fixed cost fx> fp. Suppose that an increase in auditing costs drives the fixed cost of serving the British market up to f = fx. Then: (a) British exporters will make larger profits both in the UK and in France, while small British firms only selling in the UK will sell less and make lower profits (b) British exporters will make the same profits as before both in the UK and in France, while small British firms only selling in the UK will sell as much as before but make lower profits (c) the profits of British exporters will increase in the UK and remain constant in France, while small - British firms only selling in the UK will sell less and make lower profits (d) none of the above 6. Consider the pharmaceutical sector in the UK, populated by heterogeneous firms, which differ in labour productivity, produce subject to increasing returns to scale, and sell under monopolistic competition. Serving the domestic market entails a fixed cost, fp, while exporting to France entails a variable cost T>1 and a fixed cost fx> fp. Suppose that an increase in auditing costs drives the fixed cost of serving the British market up to f = fx. Then: (a) British exporters will make larger profits both in the UK and in France, while small British firms only selling in the UK will sell less and make lower profits (b) British exporters will make the same profits as before both in the UK and in France, while small British firms only selling in the UK will sell as much as before but make lower profits (c) the profits of British exporters will increase in the UK and remain constant in France, while small - British firms only selling in the UK will sell less and make lower profits (d) none of the above

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The detailed answer for the above question is provided below Final Answer The most likely scenario given the increase of fixed serving costs in the do... View the full answer