4.Considerthe pharmaceutical sector, wherefirmswith heterogeneousproductivity, subject to increasing returns to scale, produce adifferentiatedgood and sell it in a monopolistically competitive market. Export entails both afixedand a variable cost(f_xandrespectively), while serving the foreign market through a subsidiary (horizontal FDI) only entails afixedcost,f_l>f_x.Suppose bilateraltariffs ()between the US and the UK are increased. Then:

a)averageproductivity of the pharmaceutical sector will increase on both sides of the Atlantic due to an increased presence ofmultinationalcorporations

b)averageproductivity of the pharmaceutical sector will fall on both sides of the Atlantic due to the exit of somefirms

c)averageproductivity of the pharmaceutical sector will fall on both sides of the Atlantic due to the survival of morefirmsthat only serve their domestic market

d)averageproductivity of the pharmaceutical sector will increase on both sides of the Atlantic due to the exit of somefirms