where N is the total number of varieties available. c; is the level of consumption of variety i and or is the elasticity of substitution. Firms can produce varieties to be sold In the domestic market using a production technology where labor requirements are given by: l; = 4/4+1 where p is a firm specific level of productivity and f, a fixed cost of production. Moreover, firms operate under monopolistic competition in this economy. Entry in this economy is free, but entrepreneurs need to pay an entry cost f In order to randomly draw a level of productivity out of a standard distribution F($). Firms exit exogenously every period with probability, Allow also this economy to trade with an identical economy under tree trade. Firms that wish to export face an Iceberg cost T > 1 and a fix cost of production fa > 1. The new equilibrium is given by the following equations: * = 8/PN (*) (1974-) px N(w*) (1942- 1) What happens to the equilibrium when the economy liberalizes? O The equilibrium implies a lower cut off productivity and lower average pronts Cannot know for sure with the available elements The equilibrium implies a lower cut-off productivity and higher average profits The equilibrium implles a higher cut-off productivity and higher average profits # Activar Windows