In the Krugman Model with Economies of Scale and Monopolistic

question 11

Multiple Choice

In the Krugman model with economies of scale and monopolistic competition (with L =Amount of labor hired by the firm, Q = quantity of output of the firm, W = wage rate for Labor, P = price of the firm's product, and a and b are constants) , the equation that states The labor requirement of the firm is __________. In the model, the existence of zero Profits for the firm in long-run equilibrium can be stated as __________.

• A) L = bQ; PQ = W(a + bQ)
• B) L = bQ; PQ - (a + bQ) = 0
• C) L = a + bQ; PQ = W(a + bQ)
• D) L = a + bQ; PQ - (a + bQ) = 0

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Definitions:

Opportunity Cost

The financial loss associated with rejecting the subsequent preferable choice when deciding or selecting amongst various options.

Specialization

The process of focusing on and becoming expert in a particular subject or skill, or of businesses, regions, or nations concentrating on producing certain goods or services.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, essentially what is given up when choosing one option over another.

Specialization

The practice of focusing effort on a particular field or discipline, leading to increased efficiency and expertise in that area.