In the model of monopolistic competition and increasing returns, in the trade equilibrium, the output of each firm willGroup of answer choices

In a model of monopolistic competition with increasing returns to scale, firms typically operate where price exceeds marginal cost but below average cost. Here’s a concise summary of the understanding:

1. Monopolistic Competition: Firms in this market structure sell differentiated products and have some pricing power.

2. Increasing Returns to Scale: As production increases, the average cost of production decreases, allowing firms to produce more efficiently.

3. Trade Equilibrium: In the context of trade, firms can sell their products in larger markets, which can lead to increases in output due to the ability to exploit economies of scale.

Given these points, in trade equilibrium, the output of each firm will typically be at a level where they can minimize average costs while also being impacted by the demand for their differentiated products.

Summary Answer

In the trade equilibrium under monopolistic competition and increasing returns, the output of each firm will be where price exceeds marginal cost, enabling firms to cover their average costs while competing in larger markets.