Question

(a) State and explain if the following statements are True, False or Uncertain. You have to explain your option even if the answer is True.

1. If marginal cost in two markets is identical for a firm, then an international monopolistically competitive firm would set the same price in both markets.
2. The Heckscher-Ohlin model can explain why the relative demand for skilled workers has increased within all sectors in developed countries in recent decades.
3. In the specific factor model with labor as a mobile factor, owners of both specific factors lose when workers emigrate.

Answer 1

1.False.

The monopolistically competitive firm decides on its profit-maximizing quantity and price in much the same way as a monopolist. A monopolistic competitor, like a monopolist, faces a downward-sloping demand curve, and so it will choose some combination of price and quantity along its perceived demand curve.

2.False

Heckscher-Ohlin model is the theory that proposes about international trade of a particular country. The theory states that country can export the goods that they produce plentiful and efficiently.

3.

The specific factor model assumes that an economy produces two goods using two factors of production, capital and labor, in a perfectly competitive market. One of the two factors of production, typically capital, is assumed to be specific to a particular industry. That is, it is completely immobile. The second factor, labor, is assumed to be freely and costlessly mobile between the two industries. Because capital is immobile, one could assume that the capital in the two industries are different, or differentiated, and thus are not substitutable in production. Under this interpretation, it makes sense to imagine that there are really three factors of production: labor, specific capital in industry one, and specific capital in industry two.

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