if we remove the fixed cost part of the cost function in krugman 1979 model then what will happen to the conclusion of the krugman model

Answer:

Removing the Fixed Cost Part of the Cost Function in Krugman 1979 Model

The Krugman 1979 model is a macroeconomic model that was developed by Paul Krugman to explain the gains from trade. The central idea of the model is that countries can benefit from trade by specializing in producing goods in which they have a comparative advantage. In the model, the cost of production is determined by the cost of production of a good in one country relative to the cost of production of that good in another country. One of the components of this cost function is fixed cost, which is the cost of production that is independent of the number of goods produced.

Effects of Removing Fixed Cost

If the fixed cost part of the cost function in the Krugman 1979 model is removed, it will have a direct effect on the conclusions of the model. Without the fixed cost component, the cost of production would be lower and the gains from trade would be higher. This means that countries would be more willing to specialize in goods in which they have a comparative advantage, resulting in an increase in global trade.

Implications of Removing Fixed Cost

Removing the fixed cost component of the cost function in the Krugman 1979 model has the potential to have a significant impact on the global economy. By increasing the gains from trade, countries would be more likely to engage in international trade, resulting in increased economic growth. This could lead to greater economic prosperity for all countries involved in the trade.

Limitations of Removing Fixed Cost

Although removing the fixed cost component of the cost function in the Krugman 1979 model could lead to increased economic growth, it is important to note that there could be some negative consequences as well. For example, if the fixed cost component is removed, it could lead to an increase in production costs due to the increased specialization in certain goods, which could lead to an increase in prices.

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