Consider the UK automotive sector, where firms with heterogeneous productivity, subject to increasing returns to scale, produce a differentiated good and sell it in a monopolistically competitive market. Firms selling in the domestic market are subject to a fixed cost fo. Exporting to the EU entails both a fixed cost fx and a variable cost 7. Suppose that the introduction of tariffs and border checks increase the variable trade cost 7, but the government decides to compensate for this by reducing the fixed export cost fx so that the number of exporters (hence the cut-off productivity ox) does not change. Then: UK exporters will sell less and make lower profits in the EU market while domestic sales will increase and more firms will survive Ob. none of the others Oc. UK exporters will sell less in the EU market but their profits will be unchanged, while nothing changes in domestic sales O d. nothing changes for both UK exporters and non-exporters

Consider the UK automotive sector, where firms with heterogeneous productivity, subject to increasing returns to scale, produce a differentiated good and sell it in a monopolistically competitive market. Firms selling in the domestic market are subject to a fixed cost fo. Exporting to the EU entails both a fixed cost fx and a variable cost 7. Suppose that the introduction of tariffs and border checks increase the variable trade cost 7, but the government decides to compensate for this by reducing the fixed export cost fx so that the number of exporters (hence the cut-off productivity ox) does not change. Then: UK exporters will sell less and make lower profits in the EU market while domestic sales will increase and more firms will survive Ob. none of the others Oc. UK exporters will sell less in the EU market but their profits will be unchanged, while nothing changes in domestic sales O d. nothing changes for both UK exporters and non-exporters

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter24: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 7CQ

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