Consider the Krugman: Let p be price of a product, w wage, L population, a fixed...

 

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Consider the Krugman: Let p be price of a product, w wage, L population, a fixed unit labor requirement, ß productivity, c consumption per capita of a product, q supply quantity of a firm, and N number of products (or firms). Suppose the price elasticity of demand, n, is smaller at higher levels of c. Pricing rule (PP) and zero profit condition (ZZ) are given by: (PP) P W η B(n-1) ' (ZZ) P ² = 2/2 + 1/3 W Lc How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use the graph with PP and ZZ schedules, and explain clearly 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. Consider the Krugman: Let p be price of a product, w wage, L population, a fixed unit labor requirement, ß productivity, c consumption per capita of a product, q supply quantity of a firm, and N number of products (or firms). Suppose the price elasticity of demand, n, is smaller at higher levels of c. Pricing rule (PP) and zero profit condition (ZZ) are given by: (PP) P W η B(n-1) ' (ZZ) P ² = 2/2 + 1/3 W Lc How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use the graph with PP and ZZ schedules, and explain clearly 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.

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Given Solution If the fixed cost of entrance a were higher the closedeconomy equilibrium would be different In the new equilibrium a products supply p... View the full answer