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Production of a good is characterized by external economies of scale. Currently, there is no trade in the product, and the product is produced in

Production of a good is characterized by external economies of scale. Currently, there is no trade in the product, and the product is produced in two countries. If trade is opened in this product, all production will be driven to occur in only one country.

a. With free trade, why would production occur in only one country?

b. Does opening to trade bring gains to both countries? Explain.

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