F. External Economies and the Persistence of Specialization and the Pattern of Trade. Suppose the production...

 

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F. External Economies and the Persistence of Specialization and the Pattern of Trade. Suppose the production of the good is subject to external economies of scale and that the US, for whatever reason, is the established leader in the industry with a decreasing unit cost curve of ACUS. Suppose that Japan is thinking of opening up its economy and allowing its industry to compete with the US at the international level. Japan's decreasing unit cost curve, ACJapan, is everywhere lower than the one for the US. If the economies of scale are entirely external to firms, and firms tend to be small in the industry, show graphically why Japan, who may be starting at low levels of output, may not be able to enter the market and supply the world market for this good. For your graph, you need to have the world demand for this good and each country's falling average cost curve, along with the present price of the good when demand is solely served by US firms. (8 points). F. External Economies and the Persistence of Specialization and the Pattern of Trade. Suppose the production of the good is subject to external economies of scale and that the US, for whatever reason, is the established leader in the industry with a decreasing unit cost curve of ACUS. Suppose that Japan is thinking of opening up its economy and allowing its industry to compete with the US at the international level. Japan's decreasing unit cost curve, ACJapan, is everywhere lower than the one for the US. If the economies of scale are entirely external to firms, and firms tend to be small in the industry, show graphically why Japan, who may be starting at low levels of output, may not be able to enter the market and supply the world market for this good. For your graph, you need to have the world demand for this good and each country's falling average cost curve, along with the present price of the good when demand is solely served by US firms. (8 points).

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Ans External economies of scale occur when the cost per unit depends on the size of the industry but ... View the full answer