Monopolistic Competition in the International Trade of Agricultural Products

Abstract

The aim of the paper is to describe the behavior of international firms using model of monopolistic competition, which is using optimizations of the number of firms in the sector and its characteristics, best corresponding to the needs of international trade. The assumption for application of the monopolistic competition model in the international trade area of agro production is the idea that trade increases the market size. In the sectors where increasing returns to scale apply it is valid that both heterogeneity of the goods the country produces and the extent of their production are influenced by the market size. The analysis has shown the validity of the model for the production of agricultural commodities; the expansion of the market or the increase of subsidies and thus decrease of the cost of farmers caused by an increase of the number of firms in the sector.