International Economics

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Question 1

Which of the following goods or services would be most likely to be subject to (1) external economies of scale and (2) dynamic increasing returns? Explain your answers.

a. Software tech-support services b. Production of asphalt or concrete c. Motion pictures d. Cancer research e. Timber harvesting

Question 2

It is fairly common for an industrial cluster to break up and for production to move to locations with lower wages when the technology of the industry is no longer rapidly improving-when it is no longer essential to have the absolutely most modern machinery, when the need for highly skilled workers has declined, and when being at the cutting edge of innovation conveys only a small advantage. Explains this tendency of industrial clusters to break up in terms of the theory of external economies.

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