Show, using a demand curve diagram, what happens when a country goes from open to trade to being closed to trade in the internal economies model with firms of different marginal costs. In particular, explain what happens to different types of firms (i.e. high versus low marginal cost firms).

 

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In the internal economies model with firms of different marginal costs a demand curve diagram can be used to illustrate the effects of a country transitioning from open to trade to being closed to tra... View the full answer