Question
Can you please help me with this exercice, this is not a homework Firms Heterogeneity Now suppose that firms are heterogeneous in terms of marginal
Can you please help me with this exercice, this is not a homework
Firms Heterogeneity
Now suppose that firms are heterogeneous in terms of marginal costs. As in the previous exercise, firms face a fixed cost of production F. Consider two firms whose marginal costs are c1 < c2
1. Assume the economy is closed. Show on a graph that the most productive companies are larger, charge lower prices, have higher markups and higher operating profits. Draw on another graph the relationship between operating profit and marginal cost.
2. Why can we say that in this model, trade generates winners and losers? Show it on a graph.
3. If trade costs are added to the model, what implications do they have on the type of companies that become exporters?
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