Monopolistic Competition, IRS, International Economics

Monopolistic Competition, IRS, International Economics

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Suppose that industry 1 is monopolistically competitive, with a CES sub-utility function:
U(c1,c2 ) = c1? + c?2 , 0 < ? = (s -1) / s < 1.

We let the marginal costs be denoted by c1(w,r), and the fixed costs in
the industry by ac1(w,r). That is, the fixed costs use labor and capital in the same proportions as
the marginal costs. Industry 2 is a competitive industry, and each industry uses labor and capital.

Write down the relationship between the prices of goods and factor prices. Does the Stolper-Samuelson Theorem still apply?

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