ECON 101 Lecture 11: Lecture 11 - Diverse Firms, Trade, and Reallocation
Document Summary
Lecture 11 - diverse firms, trade, and reallocation. However, the average productivity of the labor increases overall! The bad firms shrink, the good firms expand, so economy gains as a whole. Heterogeneous firms and export-market entry: basic ingredients (assumptions): Number of factors of production: 1 (labor) Factor mobility: across firms (not across countries) Number of countries: 2 (home and foreign*) Imperfect competition, variable transport costs, fixed entry costs. Key force: differences in technologies between firms. Firm heterogeneity (aka firm diversity: firms that differ in their marginal costs ci. For every firm i, marginal cost is constant. S, the number of firms in the market n, its own price pi and average market price. Demand for each variety at home a variable transport cost (so that (cid:1855)=(cid:4666)1+(cid:4667) (cid:1855): (cid:1843)=(cid:1845) [(cid:2869) (cid:1854) (cid:4666)(cid:1842) (cid:1842) (cid:4667)] (cid:1842) . is responsiveness of quantity to price, firm i has inverse demand: (cid:1842)(cid:4666)(cid:1843)(cid:4667)=(cid:1842) + (cid:2869) (cid:2869) (cid:1843)
