In simulating the long-run effects of changes in protection, Abayasiri-Silva and Horridge (hereafter A-S and H) reach a striking conclusion: ‘AGE models which assume CRTS and perfect competition [PC] also treat some types of IRTS and imperfect competition [IPC] quite accurately’. This result can be understood via Figure 14.7, whose axes indicate the number of firms (N) in an industry and the average markup (R) defined by
where P is product price and M is variable cost per unit of output.
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© Palgrave Macmillan, a division of Macmillan Publishers Limited 1998