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International Trade Theory question - please refer to pic below We modify the heterogeneous firm trade model as follows: A B D 0 On C

International Trade Theory question - please refer to pic below

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We modify the heterogeneous firm trade model as follows: A B D 0 On C of D -cfXL ofXH A profit function is assumed to be linear to firm productivity as is in a heterogeneous firm trade model. However, we introduce new assumptions about the firm's technology adoption. Assume that firms serving the domestic market only use technology L in their production Once firms start exporting, firms can choose either advanced technology H or traditional technology L. The advanced technology H requires higher fixed costs, of H > of , and also variable costs for exporting vary over technology: 1) The depicted graph above for my and ny show that variable unit costs (or trade cost) of exporting for Txt, is than that for My Two types of trade costs can allow for two possible trade liberalization paths. 2) This framework, including different technology for exporting, can be used to explain 'learning by exporting,' which indicates that some exporting firms can become more efficient while they are exporting. Please explain the mechanism of learning in this framework using four possible example firms A, B, C, and D. Which firm can experience learning by exporting after trade liberalization? Why? 3) What kind of trade liberalization is necessary for learning? 4) Please discuss average productivity changes for two groups of exporters and domestic firms after trade liberalization

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