If two countries begin trade and both produce a product subject to internal economies of scale, then the country with the ________ rate of production will ________ production until it controls ________ of the market.
A) higher; increase; 50%
B) higher; increase; 100%
C) higher; decrease; 0%
D) lower; increase; 50%
E) lower; increase; 100%

Question

Quizplus · Accepted Answer

In a situation of internal economies of scale, the country with a higher rate of production will have lower costs and can therefore sell its product at a lower price. This will enable it to capture a larger share of the market until it controls 100% of it. Therefore, the correct answer is B: higher rate of production will increase production until it controls 100% of the market.

If Two Countries Begin Trade and Both Produce a Product