国际经济学英文课件：ch06 Economies of Scale, Imperfect Competition, and International Trade

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1、Slides prepared by Thomas BishopCopyright 2009 Pearson Addison-Wesley.All rights reserved.Chapter 6Economies of Scale,Imperfect Competition,and International TradeCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-2Preview Types of economies of scale Types of imperfect competitionOligopoly

2、and monopolyMonopolistic competition Monopolistic competition and trade Inter-industry trade and intra-industry trade Dumping External economies of scale and tradeCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-3Introduction When defining comparative advantage,the Ricardian and Heckscher

3、-Ohlin models assume that production processes have constant returns to scale:When factors of production change at a certain rate,output increases at the same rate.For example,if all factors of production are doubled then output will also double.But a firm or industry may have increasing returns to

4、scale or economies of scale:When factors of production change at a certain rate,output increases at a faster rate.A larger scale is more efficient:the cost per unit of output falls as a firm or industry increases output.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-4Introduction(cont.)

5、The Ricardian and Heckscher-Ohlin models also rely on competition to predict that all income from production is paid to owners of factors of production:no“excess”or monopoly profits exist.But when economies of scale exist,large firms may be more efficient than small firms,and the industry may consis

6、t of a monopoly or a few large firms.Production may be imperfectly competitive in the sense that excess or monopoly profits are captured by large firms.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-5Types of Economies of Scale Economies of scale could mean either that larger firms or a

7、 larger industry is more efficient.External economies of scale occur when cost per unit of output depends on the size of the industry.Internal economies of scale occur when the cost per unit of output depends on the size of a firm.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-6Types of

8、 Economies of Scale(cont.)External economies of scale may result if a larger industry allows for more efficient provision of services or equipment to firms in the industry.Many small firms that are competitive may comprise a large industry and benefit when services or equipment can be efficiently pr

9、ovided to all firms in the industry.Internal economies of scale result when large firms have a cost advantage over small firms,causing the industry to become uncompetitive.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-7A Review of Monopoly A monopoly is an industry with only one firm.A

10、n oligopoly is an industry with only a few firms.In these industries,the marginal revenue generated from selling more products is less than the uniform price charged for each product.To sell more,a firm must plan to lower the price of additional units as well as of existing units,when it can not pri

11、ce discriminate.The marginal revenue function therefore lies below the demand function(which determines the price that customers are willing to pay).Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-8Fig.6-1:Monopolistic Pricing and Production DecisionsCopyright 2009 Pearson Addison-Wesley

12、.All rights reserved.6-9A Review of Monopoly(cont.)Average cost is the cost of production(C)divided by the total quantity of production(Q).AC=C/Q Marginal cost is the cost of producing an additional unit of output.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-10A Review of Monopoly(con

13、t.)Suppose that costs are represented by C=F+cQ,where F represents fixed costs,those independent of the level of output.c represents a constant marginal cost:a constant cost of producing an additional quantity of production Q.AC=F/Q+c A larger firm is more efficient because average cost decreases as

14、 output Q increases:internal economies of scale.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-11Fig.6-2:Average Versus Marginal CostCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-12Monopolistic CompetitionMonopolistic competition is a model of an imperfectly competitive in

15、dustry which assumes that1.Each firm can differentiate its product from the product of competitors.2.Each firm ignores the impact that changes in its price will have on the prices that competitors set:even though each firm faces competition it behaves as if it were a monopolist.Copyright 2009 Pearso

16、n Addison-Wesley.All rights reserved.6-13Monopolistic Competition(cont.)A firm in a monopolistically competitive industry is expected:to sell more as total sales in the industry increase and as prices charged by rivals increase.to sell less as the number of firms in the industry decreases and as its

17、 price increases.These concepts are represented by the function:Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-14Monopolistic Competition(cont.)Q=S1/n b(P P)Q is an individual firms salesS is the total sales of the industryn is the number of firms in the industryb is a constant term rep

18、resenting the responsiveness of a firms sales to its priceP is the price charged by the firm itselfP is the average price charged by its competitors Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-15Monopolistic Competition(cont.)To make the model easier to understand,we assume that all

19、firms face the same demand functions and have the same cost functions:Thus in equilibrium,all firms should charge the same price:P=P In equilibrium,Q=S/n+0AC=C/Q=F/Q+c=F(n/S)+cCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-16Monopolistic Competition(cont.)AC=F(n/S)+c As the number of fi

20、rms n in the industry increases,the average cost increases for each firm because each produces less.As total sales S of the industry increase,the average cost decreases for each firm because each produces more.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-17Fig.6-3:Equilibrium in a Mon

21、opolistically Competitive MarketCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-18Monopolistic Competition(cont.)If monopolistic firms have linear demand functions,then the relationship between price and quantity may be represented as:Q=A BxP where A and B are constants and marginal reve

22、nue may be represented as MR=P Q/B When firms maximize profits,they should produce until marginal revenue is no greater than or no less than marginal cost:MR=P Q/B=cCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-19Monopolistic Competition(cont.)Q=S1/n b(P P)Q=S/n Sb(P P)Q=S/n+SbP SbP Q=

23、A BxP Let A S/n+SbP and B SbCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-20Monopolistic Competition(cont.)MR=P Q/B=cMR=P Q/Sb=cP=c+Q/SbP=c+(S/n)/SbP=c+1/(nxb)As the number of firms n in the industry increases,the price that each firm charges decreases because of increased competition.

24、Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-21Monopolistic Competition(cont.)At some number of firms,the price that firms charge(which decreases in n)matches the average cost that firms pay(which increases in n).When the industry has this number of firms,each firm will earn revenue t

25、hat exactly offsets all costs(including opportunity costs):price will match average cost.This number is the equilibrium number of firms in the industry because firms have no incentive or tendency to enter or exit the industry.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-22Monopolistic

26、 Competition(cont.)If the number of firms is greater than or less than the equilibrium number,then firms have an incentive to exit or enter the industry.Firms have an incentive to enter the industry when revenues exceed all costs(price average cost).Firms have an incentive to exit the industry when

27、revenues are less all costs(price average cost).Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-23Monopolistic Competition and Trade Because trade increases market size,trade is predicted to decrease average cost in an industry described by monopolistic competition.Industry sales increas

28、e with trade leading to decreased average costs:AC=F(n/S)+c Because trade increases the variety of goods that consumers can buy under monopolistic competition,it increases the welfare of consumers.And because average costs decrease,consumers can also benefit from a decreased price.Copyright 2009 Pea

29、rson Addison-Wesley.All rights reserved.6-24Fig.6-4:Effects of a Larger MarketCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-25Monopolistic Competition and Trade(cont.)As a result of trade,the number of firms in a new international industry is predicted to increase relative to each nati

30、onal market.But it is unclear if firms will locate in the domestic country or foreign countries.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-26Monopolistic Competition and Trade(cont.)Hypothetical example of gains from trade in an industry with monopolistic competitionDomestic market

31、before tradeForeign market before tradeIntegrated market after tradeIndustry salesNumber of firmsSales per firmAverage costPrice900,0006150,00010,00010,0001,600,0008200,0008,7508,7502,500,00010250,0008,0008,000Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-27Inter-industry Trade Accordi

32、ng to the Heckscher-Ohlin model or Ricardian model,countries specialize in production.Trade occurs only between industries:inter-industry trade In a Heckscher-Ohlin model suppose that:The capital abundant domestic economy specializes in the production of capital intensive cloth,which is imported by

33、the foreign economy.The labor abundant foreign economy specializes in the production of labor intensive food,which is imported by the domestic economy.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-28Fig.6-6:Trade in a World Without Increasing ReturnsCopyright 2009 Pearson Addison-Wesle

34、y.All rights reserved.6-29Intra-industry Trade Suppose now that the global cloth industry is described by the monopolistic competition model.Because of product differentiation,suppose that each country produces different types of cloth.Because of economies of scale,large markets are desirable:the fo

35、reign country exports some cloth and the domestic country exports some cloth.Trade occurs within the cloth industry:intra-industry tradeCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-30Intra-industry Trade(cont.)If domestic country is capital abundant,it still has a comparative advantag

36、e in cloth.It should therefore export more cloth than it imports.Suppose that the trade in the food industry continues to be determined by comparative advantage.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-31Fig.6-7:Trade with Increasing Returns and Monopolistic CompetitionCopyright 2

37、009 Pearson Addison-Wesley.All rights reserved.6-32Inter-industry and Intra-industry Trade1.Gains from inter-industry trade reflect comparative advantage.2.Gains from intra-industry trade reflect economies of scale(lower costs)and wider consumer choices.3.The monopolistic competition model does not

38、predict in which country firms locate,but a comparative advantage in producing the differentiated good will likely cause a country to export more of that good than it imports.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-33Inter-industry and Intra-industry Trade(cont.)4.The relative im

39、portance of intra-industry trade depends on how similar countries are.Countries with similar relative amounts of factors of production are predicted to have intra-industry trade.Countries with different relative amounts of factors of production are predicted to have inter-industry trade.5.Unlike int

40、er-industry trade in the Heckscher-Ohlin model,income distribution effects are not predicted to occur with intra-industry trade.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-34Inter-industry and Intra-industry Trade(cont.)About 25%of world trade is intra-industry trade according to sta

41、ndard industrial classifications.But some industries have more intra-industry trade than others:those industries requiring relatively large amounts of skilled labor,technology,and physical capital exhibit intra-industry trade for the U.S.Countries with similar relative amounts of skilled labor,techn

42、ology,and physical capital engage in a large amount of intra-industry trade with the U.S.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-35Table 6-3:Indexes of Intraindustry Trade for U.S.Industries,1993Note:an index of 1 means that all trade is intra-industry trade.An index of 0 means t

43、hat all trade is inter-industry trade.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-36Dumping Dumping is the practice of charging a lower price for exported goods than for goods sold domestically.Dumping is an example of price discrimination:the practice of charging different customers

44、 different prices.Price discrimination and dumping may occur only if imperfect competition exists:firms are able to influence market prices.markets are segmented so that goods are not easily bought in one market and resold in another.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-37Dump

45、ing(cont.)Dumping may be a profit maximizing strategy because of differences in foreign and domestic markets.One difference is that domestic firms usually have a larger share of the domestic market than they do of foreign markets.Because of less market dominance and more competition in foreign marke

46、ts,foreign sales are usually more responsive to price changes than domestic sales.Domestic firms may be able to charge a high price in the domestic market but must charge a low price on exports if foreign consumers are more responsive to price changes.Copyright 2009 Pearson Addison-Wesley.All rights

47、 reserved.6-38Dumping(cont.)We draw a diagram of how dumping occurs when a firm is a monopolist in the domestic market but must compete in foreign markets.Because the firm is a monopolist in the domestic market,the demand function that it faces in the domestic market is downward sloping,and marginal

48、 revenue from additional output is always less than a uniform price for all units of output.Because the firm competes in foreign markets,the demand function that it faces in foreign markets is horizontal,representing the fact that exports are very responsive to small price changes.Copyright 2009 Pea

49、rson Addison-Wesley.All rights reserved.6-39Fig.6-8:DumpingCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-40Dumping(cont.)To maximize profits,the firm should sell a limited amount in the domestic market at a high price PDOM,but sell in foreign markets at a low price PFOR.Since more can

50、always be sold at PFOR,the firm should sell its products at a high price in the domestic market until marginal revenue there falls to PFOR.Thereafter,it should sell exports at PFOR until marginal costs exceed this price.In this case,dumping is a profit-maximizing strategy.Copyright 2009 Pearson Addi

51、son-Wesley.All rights reserved.6-41Protectionism and Dumping Dumping(as well as price discrimination in domestic markets)is widely regarded as unfair.A US firm may appeal to the Commerce Department to investigate if dumping by foreign firms has injured the US firm.The Commerce Department may impose

52、an“anti-dumping duty,”or tax,as a precaution against possible injury.This tax equals the difference between the actual and“fair”price of imports,where“fair”means“price the product is normally sold at in the manufacturers domestic market.”Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-42

53、Protectionism and Dumping(cont.)Next the International Trade Commission(ITC)determines if injury to the U.S.firm has occurred or is likely to occur.If the ITC determines that injury has occurred or is likely to occur,the anti-dumping duty remains in place.See http:/www.usitc.gov/trade_remedy/731_ad_

54、701_cvd/index.htmCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-43External Economies of Scale If external economies exist,a country that has a large industry will have low costs of producing that industrys good or service.External economies may exist for a few reasons:Copyright 2009 Pea

55、rson Addison-Wesley.All rights reserved.6-44External Economies of Scale(cont.)1.Specialized equipment or services may be needed for the industry,but are only supplied by other firms if the industry is large and concentrated.For example,Silicon Valley in California has a large concentration silicon c

56、hip companies,which are serviced by companies that make special machines for manufacturing silicon chips.These machines are cheaper and more easily available for Silicon Valley firms than for firms elsewhere.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-45External Economies of Scale(co

57、nt.)2.Labor pooling:a large and concentrated industry may attract a pool of workers,reducing employee search and hiring costs for each firm.3.Knowledge spillovers:workers from different firms may more easily share ideas that benefit each firm when a large and concentrated industry exists.Copyright 2

58、009 Pearson Addison-Wesley.All rights reserved.6-46External Economies of Scale and Trade If external economies exist,the pattern of trade may be due to historical accidents:countries that start as large producers in certain industries tend to remain large producers even if another country could pote

59、ntially produce more cheaply.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-47Fig.6-9:External Economics and SpecializationCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-48External Economies of Scale and Trade(cont.)Trade based on external economies has an ambiguous effect

60、on national welfare.There may be gains to the world economy by concentrating production of industries with external economies.But there is no guarantee that the right country will produce a good subject to external economies.It is even possible that a country is worse off with trade than it would ha

61、ve been without trade:a country may be better off if it produces everything for its domestic market rather than pay for imports.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-49Fig.6-10:External Economics and Losses from TradeCopyright 2009 Pearson Addison-Wesley.All rights reserved.6-5

62、0External Economies of Scale and Trade(cont.)External economies may also be important for interregional trade within a country Many movie producers are located in Los Angeles which produce movies for consumers throughout the U.S.Many financial firms are located in New York which provide financial se

63、rvices for consumers throughout the U.S.If external economies exist,the pattern of trade may be due to historical accidents:regions that start as large producers in certain industries tend to remain large producers even if another region could potentially produce more cheaply.Copyright 2009 Pearson

64、Addison-Wesley.All rights reserved.6-51External Economies of Scale and Trade(cont.)More broadly,economic geography refers to the study of international trade,interregional trade and the organization of economic activity in metropolitan and rural areas.Economic geography studies how humans transact w

65、ith each other across space.Communication changes such as the internet,e-mail,text mail,video conferencing,mobile phones(as well as modern transportation)are changing how humans transact with each other across space.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-52External Economies of

66、Scale and Trade(cont.)We have considered cases where external economies depend on the amount of current output at a point in time.But external economies may also depend on the amount of cumulative output over time.Dynamic increasing returns to scale exist if average costs fall as cumulative output over time rises.Dynamic increasing returns to scale imply dynamic external economies of scale.Copyright 2009 Pearson Addison-Wesley.All rights reserved.6-53External Economies of Scale and Trade(cont.)D