A Ricardo model with economies of scale (Q1327373)

This paper extends the analysis of the classical \(n\)-good two-country Ricardo model of international trade to the case where the production functions have economies of scale. It addresses the technical difficulties inherent in economies of scale by new integer programming and linear programming methods. The analysis reveals the existence of a well defined region which fills in solidly with equilibrium points as the number of goods becomes large. New economic conclusions follow from the ability to analyze these large models, among them that, in the presence of economies of scale, considerable conflict exists between the interests of the two trading partners.