Question
Draw and explain the equilibrium in terms of price and number of firms in a monopolistically competitive market (such a market results from increasing returns
Draw and explain the equilibrium in terms of price and number of firms in a monopolistically competitive market (such a market results from increasing returns to scale). Carefully explain what the curves in the model represent, and why they are shaped the way that they are, as well as the characteristics of the equilibrium. You do not need to describe the algebra behind the curves.
What happens in this model when a country opens up to international trade? Draw this change on the diagram. How are the gains to consumers resulting from trade demonstrated in this model?
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