Illustrate the trade equilibrium of the Melitz model by drawing the Free Entry curve and the Zero Profit Cutoff condition in the appropriate diagram. How does an increase in tariffs affect the two curves and the cutoff firm p"? (Note: You do not need to use any numbers or derive any equations for this diagram. Simply sketch the trade equilibrium and show how it changes.)

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Factors of Production

Factors of production – in simple words means the factors that are used for producing any product or service. This includes the resources which are necessary for the manufacturing of products. Factors of production are also known as the building blocks of the economy.