1. Monopolistically Competitive Firms and International Trade
For monopolistically competitive firms, participation in international trade results in an increase in output in both the short and long term. On the other hand, in the long run, the result of a firm's participation in international trade is a reduction in market prices, an increase in consumer surplus and an improvement in welfare. In the long run, the existence of economies of scale (whether external or internal) results in lower product prices and lower production costs, and the international trade that occurs as a result of differentiated products and economies of scale also brings a wider choice of products to consumers in all countries, and consumer diversity is satisfied. Therefore, although the cause of intra-industry trade is no longer differences in factor endowments, the result of trade still benefits the trading countries.
2. Krugman model
(1) There is an isotropic relationship between the number of firms in the market and the average cost of firms. The more firms there are, the less output individual firms can produce under a given market size, and thus the higher the average cost.
(2) There is an inverse relationship between the number of firms and the price of a product. The more firms there are, the more intense the competition, and the lower the price of the product.
(3) The relationship between the number of enterprises, product price and average cost is that when the price is higher than the average cost (there is monopoly profit), new enterprises will enter the market and the number of enterprises will increase; when the price is lower than the average cost (enterprises lose money), existing enterprises will leave the market and the number of enterprises will decrease.
International trade can increase the size of the market and also expand the range of goods available to consumers by buying products from other countries that they do not produce.
Assuming that the number of firms in the market remains constant, with international trade, the monopolistically competitive firm has to produce more for export, and as output expands, the firm's average cost falls, represented in the graph as the CC line shifting to the right at CC2. Since the PP line is independent of market size, international trade does not affect its position. As can be seen from the graph, as a result of international trade taking place, which moves the CC line to the right, the number of firms in the monopolistically competitive market increases to N2 on the one hand, and the price level in the monopolistically competitive market decreases to P2 on the other, as the increase in the number of firms makes competition more intense. therefore, as a result of international trade by monopolistically competitive firms, the price of the good decreases and increases consumer welfare, while the variety of goods available to consumers increases, and welfare is thus enhanced.
