1. Figure 14.4 N 2 manufacturing firms N 2 varieties (elasticity  ) internal returns to scale monopolistic competition N 1 manufacturing firms N 1 varieties (elasticity  ) internal returns to scale monopolistic competition Farms in 1Farms in 2 Spending 1-  m mm Manufacturing workers in 2 Farm workers in 2 Consumers in 2 Farm workers in 1 Consumers in 1 Income Spending (goods) (farm labor) (labor) Income (labor) Income Spending on manufactures Spending on food Income (farm labor) Spending on food 1-  m mm Spending on manufactures (goods) T a c b d e f Direction of (goods and services flows) Direction of money flows Mobility ( i ) g Manufacturing workers in 1

2. Laborers in the manufacturing sector in region 2; 2  m L Laborers in the manufacturing sector in region 1; 1  m L Laborers in the food sector in region 1;  1 (1-  m )L Laborers in the food sector in region 2;  2 (1-  m )L Laborers in the food sector (1-  m )L Laborers in the manufacturing sector;  m L Total number of laborers; L (1-  m ) mm 11 22 1 2 Note:  1 +  2 = 1Note: 1 + 2 = 1 Mobility

3. Sustain points Break point Transport costs T 1 0 1 1 0.5 Stable equilibria Unstable equilibria B S0S0 S1S1 Basin of attraction for spreading equilibrium Basin of attraction for agglomeration in region 1 Basin of attraction for agglomeration in region 2 Figure 14.9

4. Foreign Direct Investment Greenfield InvestmentsMergers and Acquisitions (M&A) MergersAcquisitions Full acquisition (100%) More than 50% acquistion 10% - 49% acquisition 22%78% 3% of M&A97% of M&A 65% of M&A15% of M&A16% of M&A Figure 15.3

5. Headquarters in Austria Headquarters in Bolivia Firm level fixed costs Fw A Firm level fixed costs Fw B Plant level fixed costs Gw A Plant level fixed costs Gw B Plant level fixed costs Gw A Plant level fixed costs Gw B + Multi-plant production? m B ; multinational firm, headquarters in Bolivia MC in A = cw A MC in B = cw B m A ; multinational firm, headquarters in Austria MC in A = cw A MC in B = cw B n B ; national firm, headquarters in Bolivia MC in A = (c+t)w B MC in B = cw B n A ; national firm, headquarters in Austria MC in A = cw A MC in B = (c+t)w A Multi-plant production? + yes no Headquarter location

6. Figure 15.9

7. labor capital OAOA OBOB Austria large Bolivia small Austria small Bolivia large Austria capital abundant Bolivia labor abundant Austria labor abundant Bolivia capital abundant C Figure 15.10

8. .95.90.80.85.75.70.65.30.35.60.55.50.45.40.25.15.10.05.20.95.90.80.85.75.70.65.30.35.60.55.50.45.40.25.15.10.05.20 Endowment of labor Endowment of capital OAOA OBOB a. Base scenario National firms only Mixed regimes Multi- national firms only Figure 15.11a

9. .95.90.80.85.75.70.65.30.35.60.55.50.45.40.25.15.10.05.20.95.90.80.85.75.70.65.30.35.60.55.50.45.40.25.15.10.05.20 Endowment of labor Endowment of capital OAOA OBOB b. Smaller countries; 40% National firms only Mixed regimes Multi- national firms only Figure 15.11b

10. Substrate Media Motors Head-Stack Assembly Head- Gimbal Assembly Head Fabrication Semiconductors PCB Stuffing and Other Electronics Assembly Head-Disk Assembly Final Assembly Testing Component Fabrication Activities Subassembly Activities Final Assembly Activities Figure 15.12

11. good X good Y A B ppf Figure 16.2

12. Number of varieties quantity q N t = 0 N t = 1 Figure 16.3

13. Figure 16.4

14. Food Manufactures Pr A Pr B CACA CBCB ppf A ppf B slope = - p m /p f Figure 17.2

15. Figure 17.3 C C AA quantity demand supply price q0q0 q1q1 q4q4 q3q3 q2q2 p0p0 p 0 (1+t 0 ) imports with free trade imports with tariff t 0 p 0 (1+t 1 ) imports with tariff t 1 q5q5 BB

16. quantity price demand Dupuit triangle q p q max p max O A Figure 17.6

17. quantity price demand Dupuit triangle q0q0 p q max p max O E0E0 p+t E1E1 Harberger triangle q1q1 Figure 17.7