How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per capita of a product, supply quantity of a product, price of a product relative to wage, and number of product varieties change. Provide intuition for your results.
How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per capita of a product, supply quantity of a product, price of a product relative to wage, and number of product varieties change. Provide intuition for your results.
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
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S 5
![2. Consider the Krugman: Let p be price of a product, w wage, L population, a fixed unit labor
requirement, ß productivity, c consumption per capita of a product, q supply quantity of a firm,
and N number of products (or firms). Suppose the price elasticity of demand, n, is smaller at
higher levels of c. Pricing rule (PP) and zero profit condition (ZZ) are given by:
η
(PP) P
w B(n-1)'
(ZZ)
Р a 1
W Lc ß
2|3
How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use
the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per
capita of a product, supply quantity of a product, price of a product relative to wage, and number
of product varieties change. Provide intuition for your results.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2bc31c26-3182-4aa9-90d1-367cc77bff71%2F599a4c3a-46b8-4382-825b-754f3169ccce%2Fe3fmsuj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Consider the Krugman: Let p be price of a product, w wage, L population, a fixed unit labor
requirement, ß productivity, c consumption per capita of a product, q supply quantity of a firm,
and N number of products (or firms). Suppose the price elasticity of demand, n, is smaller at
higher levels of c. Pricing rule (PP) and zero profit condition (ZZ) are given by:
η
(PP) P
w B(n-1)'
(ZZ)
Р a 1
W Lc ß
2|3
How would the closed-economy equilibrium change if fixed cost of entry, a, were larger? Use
the graph with PP and ZZ schedules, and explain how in the new equilibrium, consumption per
capita of a product, supply quantity of a product, price of a product relative to wage, and number
of product varieties change. Provide intuition for your results.
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