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    The Stolper-Samuelson theorem

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    Why are increasing returns to scale and fixed costs important in models of international trade and monopolistic competition?

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    https://brainmass.com/economics/international-trade/stolper-samuelson-theorem-317556

    Solution Preview

    There are many answers. Three of these are-

    (a) In models of international trade and monopolistic competition, increasing returns to scale and high fixed costs are important as they give rise to mutually beneficially trade in these models. In industries where there are economies of scale, both the variety of goods that a country can produce and the scale of its production are constrained by the size of the market. By trading with each other, and therefore ...

    Solution Summary

    The Stolper-Samuelson theorem is summarized. Why there is an increasing returns to scale and fixed costs important in models of interational trade and monopolistic competition are determined.

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