The Krugman economies-of-scale "strategic trade policy" model stresses that protection given to a home firm will, other things equal, __________ the marginal cost of producing each level of home output and will __________ the marginal cost of producing each level of foreign output.

Question

Quizplus · Accepted Answer

According to the Krugman model, protection given to a home firm will decrease the marginal cost of producing each level of home output, as the protected firm will enjoy economies of scale and lower costs. However, protection will increase the marginal cost of producing each level of foreign output, as the foreign firm will face higher costs due to the trade barriers. Therefore, the correct answer is B.

The Krugman Economies-Of-Scale "Strategic Trade Policy" Model Stresses That Protection