EC239 Lecture Notes - Lecture 6: Protectionism, Infant Industry Argument, Comparative Advantage
Document Summary
Ec239 lesson 6: all models previously followed the assumption of constant returns to scale (outputs ^ proportionally with ^ in inputs of factors of production) 5. 33: tripling inputs from scale a to c results in output >3x and even avg. cost, the presence of internal economies of scale in such cases justifies the incentive for international trade. This implies ea(cid:272)h fir(cid:373)"s produ(cid:272)tio(cid:374) ^ fro(cid:373) (cid:1005)(cid:1004)(cid:1004)-200. If the avg. cost of production falls in this case, the firm is experiencing internal economies of scale. 6. 2 economies of scale & market structure: w the prese(cid:374)(cid:272)e of e(cid:454)ter(cid:374)al e(cid:272)o(cid:374)o(cid:373)ies of s(cid:272)ale, it"s still possi(cid:271)le for a large # of s(cid:373)all fir(cid:373)s to operate in a perfectly competitive market. Internal economies of scale implies cost advantages for the large firms & hence the ability to influence the market p. markets no longer can be competitive in such cases giving rise to an imperfectly competitive market structure.
