What are the benefits of international trade

Reference no: EM133487223

Question: Consider a situation in which two countries, Home and Foreign, can produce a good that is subject to external economies of scale. Assume that firms in both countries face the same average costs curve (AC),

given by AC = m+r/s+Q where m=3, r=20, s=2 and Q indicates quantity.

The demand curves are given by, respectively:

Home: Q= b-P

Foreign Q = b*-P

where b=20 and b*=40 . Q indicates quantity and P indicates price

Assume that these two countries open to trade with each other. Which country will produce the good? Explain why.
What are the benefits of international trade in this case? Do they accrue only to the country that gets the industry?

Reference no: EM133487223

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